Question

On July 1, Year 1, Danzer Industries Inc. issued $25,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $20,001,500. 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

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

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

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

Answer 1

Answer 1

01-Jul	Cash	Dr	2,00,01,500
	Discount on Bond	Dr	49,98,500
	Bonds Payable	Cr		2,50,00,000

Answer 2 (a)

31-Dec	Interest Expense	Dr	14,00,105
	Discount on Bond	Cr		25,105
	Cash	Cr		13,75,000

Asnwer 2(b)

30-Jun	Interest Expense	Dr	14,01,862
	Discount on Bond	Cr		26,862
	Cash	Cr		13,75,000

Answer 3

Total Interest expense for Year 1 = $1,400,105