Question

On July 1, Year 1, Danzer Industries Inc. issued $43,200,000 of 10-year, bonds at a market effective interest rate of 10%,receiving cash of $40,508,184. Interest on the bonds is payable semiannually on December 31 and June 30. The focal year of the company is the calendar you Required: 1. Joumate the entry to record the amount of the proceeds from the issuance of the bands on wy r . 2. Journal the entries to record the following: a. The first semiannu intreal payment on December 31, Year 1, and the notion of the bondscout using the straighine method (Round to the nearest dollar) b. The interest payment on June 30, Year 2, and the amortization of the bond discount using the straight line method (Pound to the nearest dollar) 3. Determine the total invest expense for Year 1. 4. Will the band 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 $40,500,184 received for the bonds by using the present value tables (Pound to the nearest dollar) "Refer to the Chart of Accounts for exact wording of account sites.

Answer 1

	Date	General Journal	Debit	Credit
1	July 1, Year 1	Cash	40508184
		Discount on bonds payable	2691816
		Bonds payable		43200000
		(To record issuance of bonds)
2a.	Dec. 31, Year 1	Interest expense	2078591
		Discount on bonds payable ($2691816/20)		134591
		Cash ($43200000 x 9% x 6/12)		1944000
		(To record first semi-annual interest payment and amortization of discount)
b.	June 30, Year 2	Interest expense	2078591
		Discount on bonds payable ($2691816/20)		134591
		Cash ($43200000 x 9% x 6/12)		1944000
		(To record second semi-annual interest payment and amortization of discount)

3. Total interest expense for Year 1: $2,078,591.

4. Yes. When the contract rate of interest on the bonds is less than the market rate of interest, the bonds will be less attractive to investors making them priced lower than the face value.

5.

Present value of the face amount ($43,200,000 x 0.37689)*	16281648
Present value of the semi-annual interest payments ($1944000 x 12.46221)*	24226536
Price received for the bonds	40508184

*Interest payment = $43,200,000 x 9% x 1/2 = $1944000

PV factor (i=5%, n=20): 0.37689

PVA factor (i=5%, n=10): 12.46221