Question

On July 1, Year 1, Danzer Industries Inc. issued $1,300,000 of 9-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $1,226,906. 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
	Discount on Bonds Payable
	Bonds Payable

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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
	Discount on Bonds Payable
	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 Discount on Bonds Payable Cash 3. Determine the total interest expense for Year 1. Round to the nearest dollar. $ 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 $1,226,906 received for the bonds by using 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 $

Answer 1

	Date	Accounting titles & Explanations				Debit	Credit
	1-Jul	Cash				1,226,906
		Discount on bonds payable				73,094
		Bonds payable					1,300,000
	2-a)
	31-Dec	interest expense				69061
		Discount on bonds		(73094/18)			4061
		cash	(1,300,000*5%)				65000
	2-b)
	30-Jun	interest expense				69061
		Discount on bonds					4061
		cash					65000
	3)	total interest expense for year 1
		69,061
	4)	yes
		where I = 5.5% and t =18 years)
	5)	present value of the face amount				(1,300,000*.38147)		495911
		PV of the semi annual interest payment				(65000*11.24607)		730995
		price received for the bonds						1226906