Question

Bond discount, entries for bonds payable transactions ! Journal Instructions Present Value Tables Chart of Accounts !Final Questions X Instructions On July 1, 20Y1, Danzer Industries Inc. issued $30,000,000 of 10-year, 11% bonds at a market (effective) interest rate of 12% , receiving cash of $28,279,368. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Required: 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 20Y1. 2. Journalize the entries to record the following: a. The first semiannual interest payment on December 31, 20Y1, and the amortization of the bond discount, using the straight-line method (Round to the nearest dollar) b. The interest payment on June 30, 20Y2, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) 3. Determine the total interest expense for 20Y1. 4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? 5. Compute the price of $28,279,368 received for the bonds by using the present value tables. (Round to the nearest dollar.) account titles Refer to the Chart of Accounts for exact wording

Answer 1

Face Value of Bonds = $30,000,000
Issue Value of Bonds = $28,279,368

Discount on Bonds = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds = $30,000,000 - $28,279,368
Discount on Bonds = $1,720,632

Annual Coupon Rate = 11.00%
Semiannual Coupon Rate = 5.50%
Semiannual Coupon = 5.50% * $30,000,000
Semiannual Coupon = $1,650,000

Time to Maturity = 10 years
Semiannual Period = 20

Answer 5.

Annual Interest Rate = 12.00%
Semiannual Interest Rate = 6.00%

Present Value of Face Amount = $30,000,000 * PV of $1 (6.00%, 20)
Present Value of Face Amount = $30,000,000 * 0.31180
Present Value of Face Amount = $9,354,000

Present Value of Semiannual Interest Payments = $1,650,000 * PVA of $1 (6.00%, 20)
Present Value of Semiannual Interest Payments = $1,650,000 * 11.46992
Present Value of Semiannual Interest Payments = $18,925,368

Price Received for the Bonds = Present Value of Face Amount + Present Value of Semiannual Interest Payments
Price Received for the Bonds = $9,354,000 + $18,925,368
Price Received for the Bonds = $28,279,368