Question

hart of Accounts

Journal

Final Questions

X

Instructions

On July 1, Year 1, Danzer Industries Inc. issued $35,400,000 of 10-year, 10% bonds at a market (effective) interest rate of 12%, receiving cash of $31,339,478. 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.*
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 straight-line 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. (Round to the nearest dollar.)
3.	Determine the total interest expense for Year 1.
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 $31,339,478 received for the bonds by using the tables shown in Present Value Tables. (Round to the nearest dollar.)

Answer 1

Date	Accounting titles & Explanations				Debit	Credit
1-Jul	Cash				31,339,478
	Discount on bonds payable				4,060,522
	Bonds payable					35,400,000
2-a)
31-Dec	interest expense				1973026
	Discount on bonds		(4,060,522/20)			203026
	cash	(35,400,000*5%)				1770000
2-b)
30-Jun	interest expense				1973026
	Discount on bonds					203026
	cash					1770000
3)	total interest expense for year 1
	1,973,026
4)	yes
	where I = 6% and t =20 years)
5)	present value of the face amount				(35,400,000*.3118)		11037720
	PV of the semi annual interest payment				(1770000*11.46992		20301758
	price received for the bonds						31339478