In: Accounting
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 |
Feedback
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 |
Feedback
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 |
Feedback
3. Determine the total interest expense for
Year 1.
$
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