Question

Instructions On July 1, 2011, Danzer Industries Inc. issued $40,000,000 of 10 year, 7% bonds at a market (effective) nterest 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 Required: 1. Journaize 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, 2014, and the amortization of the bond discount, using the interest method (Rour to the nearest dollar) b. The interest payment on June 30, 2042, and the amortization of the bond discount, using the interest method (Round to the nearest dollar 3. Determine the total interest expense for 2011 *Refer to the Chart of Accounts for exact wording of account titles

Answer 1

Face Value $4,00,00,000 Coupon Rate 7% Market Rate 8% period (10 x 21 20 Sales Proceeds $3,72,82,062 Discount on Bond $27,17,938 [$40000000-$37282062] Interest payment $14,00,000 ($40000000 x 7%/2] Amortisation of Discount $1,35,897 ($2717938/20] Journal Entry Date Account Title Debit Credit July 1, 2011 Cash $3,72,82,062 Discount on Bond Payable $27,17,938 Bond Payable $4,00,00,000 (To record issuance of bond at discount) Dec 31, 20Y1 Interest Expense $14,91,282 Discount on Bond Payable $91,282 Cash $14,00,000 (To record interest payment and discount amortisation) June 30, 20Y2 Interest Expense $14,94,934 Discount on Bond Payable $94,934 Cash $14,00,000 (To record interest payment and discount amortisation) Accounting Equation Liabilities Assets Equity Interest Expense for 20Y1 is $1491282 Effective Interest Amortisation schedule Date Beginning Bal Cash Paid Interest Exp Amortisation Ending Balance (A) (B) = $40000000 x 7%/2 (C)= (A) x 8%/2 (C)-(B) (A) + (C) - (B) July 1, 20Y1 $3,72,82,062 Dec 31, 20Y1 $3,72,82,062 $14,00,000 $14,91,282 $91,282 $3,73,73,344 June 30, 20Y2 $3,73,73,344 $14,00,000 $14,94,934 $94,934 $3,74,68,278