Question

On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Answer 1

Answer:

1.

Year 2
June	30	Interest Expense	1,535,897
		Discount on Bonds Payable*		135,897
		Cash		1,400,000

2.

a.

Year 1
July	1	Cash	37,282,062
		Discount on Bonds Payable	2,717,938
		Bonds Payable		40,000,000

* $2,717,938 ÷ 20 semiannual payments

b.

Year 1
Dec.	31	Interest Expense	1,535,897
		Discount on Bonds Payable*		135,897
		Cash		1,400,000

* $2,717,938 ÷ 20 semiannual payments

3.

$1,535,897 = $1,400,000 + $135,897

4.     

Yes. Investors will not be willing to pay the face amount of the bonds when the interest payments they will receive from the bonds are less than the amount of interest that they could receive from investing in other bonds of a similar risk.

5.

Present value of $1 for 20 semiannual

periods at 4.0% semiannual rate……………………... 0.45639

Face amount of bonds …………………………… $40,000,000   $18,255,600

Present value of annuity of $1 for 20

semiannual periods at 4.0% semiannual rate……… 13.59033

Semiannual interest payment ..……………………×$1,400,000       19,026,462

Proceeds of bond issue…………………………………     $37,282,062

NOTE : you have missed the requirements but i know the similar type of questions so, i had done that's requirements