Question

On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. 2. Journalize the entries to record the following: a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the interest method. Round to the nearest dollar: b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using th interest method. Round to the nearest dollar 3. Determine the total interest expense for Year 1.

Answer 1

Answer - Part - (1 and 2) -

No.	Date	General journal	Debit ($)	Credit ($)
1.	July 1, Year 1	Cash [Given in question] Discount on Bonds Payable [Difference] Bonds Payable [Given in question]	37282062 2717938 -	- - 40000000
2.(a)	December 31, Year 1	Interest Expense [$37282062 * 8% *6/12] Discount on Bonds Payable [Difference]​​​​​​​ Cash [$40000000 * 7%* 6/12]	1491282 - -	- 91282 1400000
2.(b)	June 30, Year 2	Interest Expense [$37282062 * 8% *6/12] Discount on Bonds Payable [Difference]​​​​​​​ Cash [$40000000 * 7%* 6/12]	1491282 - -	- 91282 1400000

.

Answer - Part - (3) -

Total Interest Expense for Year 1 -

= Amount received from issuance of bonds * Effective interest rate * Period

= $37282062 * 8% * 6 months / 12 months

= $1491282.