Question

In: Accounting

On July 1, Year 1, Danzer Industries Inc. issued $68,000,000 of 20-year, 11% bonds at a...

On July 1, Year 1, Danzer Industries Inc. issued $68,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $54,404,080. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Required:

For all journal entries: If an amount box does not require an entry, leave it blank.

1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds.

Year 1 July 1 Cash
Discount on Bonds Payable
Bonds Payable

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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.)

Year 1 Dec. 31 Interest Expense
Discount on Bonds Payable
Cash

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

Year 2 June 30 Interest Expense
Discount on Bonds Payable
Cash

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3. Determine the total interest expense for Year 1.
$

Solutions

Expert Solution

calculation:

Interest Paid = $68,000,000* 11% *6/12 = $3,740,000

Interest Expense = Carrying Value at the beginning * 14* 6/12

Answer to Requirement 3

Interest Expense for Year 1 = $3,808,286


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