Question

In: Accounting

Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued...

Bond Discount, Entries for Bonds Payable Transactions

On July 1, Year 1, Danzer Industries Inc. issued $1,200,000 of 5-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $1,153,665. 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

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
Cash

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.)

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 $1,153,665 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 $

Solutions

Expert Solution

Answer:-

Adjustment Entries
Date Particular Debit Credit
July 1, Year 1 Cash A/c Dr 1153665
Discount on Bonds Payable Dr 46335
To Bonds Payable A/c 1200000
December 31, Year 1 Bond Interest Expense Dr 49366.5 (5 years * 2 = 10 Periods)
Discount on Bonds Payable (46335/10) Dr 4633.5 (9/2 = 4.5%)
To Cash A/c (1200000*4.5%) 54000
June 30, Year 2 Bond Interest Expense Dr 49366.5
Discount on Bonds Payable (46335/10) Dr 4633.5
To Cash A/c (1200000*4.5%) 54000
Answer 3:- Total Interest Expense for year 1 = $49366.5
Answer 4:- Yes, 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
Answer 5 :- Tables values are based on:
n= 10
I = 5%
Cash Flow Amount PV Factor Present value
Interest 54000 7.719 384465
Principal 1200000 0.641 769200
1153665
PV of the face amount 384465
PV of semi-annual interest payment 769200
Price 1153665

Related Solutions

Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued $6,900,000 of 7-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $6,569,162. 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...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued $6,700,000 of 8-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $6,336,925. 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...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued $7,700,000 of 5-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $7,402,686. 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...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued $2,500,000 of 5-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $2,403,470. 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...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued $4,100,000 of 7-year, 9% bonds at a market (effective) interest rate of 11%, receiving cash of $3,706,827. 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...
Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Discount On July 1,...
Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Discount On July 1, 20Y1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $30,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $24,001,800. 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...
Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Discount On July 1,...
Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Discount On July 1, 20Y1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $37,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $29,602,220. 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...
Solve the following problem. Bond discount, entries for bonds payable transactions On July 1, Year 1,...
Solve the following problem. Bond discount, entries for bonds payable transactions On July 1, Year 1, Danzer Industries Inc. issued $43,200,000 of 10-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $40,508,184. 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...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Livingston Corporation, a wholesaler...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $3,800,000 of 8-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $3,601,220. 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...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Livingston Corporation, a wholesaler...
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $5,300,000 of 8-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $5,012,800. 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...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT