Question

Please help me with the question no: 5. Thanks in advance

Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued $4,700,000 of 10-year, 8% bonds at a market (effective) interest rate of 10%, receiving cash of $4,114,278. 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, Year 1. If an amount box does not require an entry, leave it blank.

Cash 4,114,278 Discount on Bonds Payable 585,722 Bonds Payable 4,700,000

Feedback Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. Learning Objective

2. 2. Journalize the entries to record the following: If an amount box does not require an entry, leave it blank. a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. (Round your answer to the nearest dollar.)

Interest Expense 217,286 Discount on Bonds Payable 29,286 Cash 188,000

Feedback Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. Learning Objective

2. b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. (Round your answer to the nearest dollar.)

Interest Expense 217,286 Discount on Bonds Payable 29,286 Cash 188,000

Feedback Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. Learning

5. Exhibit 5 and Exhibit 7. (Round you PV values to 5 decimal places and the final answers to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.

Present value of the face amount

Present value of the semi-annual interest payments

$ Price received for the bonds $ Feedback

Answer 1

In the books of Danzer Industries Inc. :

Transaction / Event	Date	Account Titles	Debit	Credit
			$	$
1.	July 1, Year 1	Cash	4,114,278
		Discount on Bonds Payable	585,722
		Bonds Payable		4,700,000
2.	December 31, Year 1	Interest Expense	217,286
		Discount on Bonds Payable		29,286
		Cash		188,000
3.	June 30, Year 2	Interest Expense	217,286
		Discount on Bonds Payable		29,286
		Cash		188,000

3. Total interest expense for Year 1 : $ 217,286.

4. Yes.

5. Semiannual coupon = $ 4,700,000 x 8 % x 1/2 = $ 188,000.

Maturity value = $ 4,700,000

n = 10 x 2 = 20.

i = 10 % x 1/2 = 5 %.

PVA _{5%, n = 20} = [ { 1 - ( 1 / 1.05 ) ²⁰ } / 0.05 ] = 12.46221

PV _{5%, n=20} = ( 1 / 1.05 ) ²⁰ = 0.37689

Present value of the face amount = $ 4,700,000 x 0.37689 = $ 1,771,383.

Present value of the semi-annual interest payments = $ 188,000 x 12.46221 = $ 2,342,895.48

Price received for the bonds = $ 1,771,383 + $ 2,342,895 = $ 4,114,278.