Question

When companies offer new debt security issues, they publicize the offerings in the financial press and on Internet sites. Assume the following were among the debt offerings reported in December 2018:

New Securities Issues

Corporate

National Equipment Transfer Corporation —$215 million bonds via lead managers Second Tennessee Bank N.A. and Morgan, Dunavant & Co., according to a syndicate official. Terms: maturity, Dec. 15, 2024; coupon 7.61%; issue price, par; yield, 7.61%; noncallable, debt ratings: Ba-1 (Moody's Investors Service, Inc.), BBB + (Standard & Poor's).

IgWig Inc. —$365 million of notes via lead manager Stanley Brothers, Inc., according to a syndicate official. Terms: maturity, Dec. 1, 2026; coupon, 6.36%; Issue price, 99; yield, 6.46%; call date, NC; debt ratings: Baa-1 (Moody's Investors Service, Inc.), A (Standard & Poor's).

Required:
1. Prepare the appropriate journal entries to record the sale of both issues to underwriters. Ignore share issue costs and assume no accrued interest.

• - Record the sale of National Equipment Transfer Corporation to underwriters.
• - Record the sale of IgWig, Inc. to underwriters.

2. Prepare the appropriate journal entries to record the first semiannual interest payment for both issues.

- Record the first semiannual payment for National Equipment Transfer Corporation.

- Record the first semiannual payment for IgWig, Inc.

Answer 1

( 1 ) -- Prepare the appropriate journal entries to record the sale of both issues to underwriters. Ignore share issue costs and assume no accrued interest.

Answer -

Event	General Journal	Debit ($)	Credit ($)
1.	Cash Bonds payable (To record the sale of National Equipment Transfer Corporation to underwriters)	215000000 -	- 215000000
2.	Cash [$365000000*99%] Discount on notes payable [balancing figure] Notes payable (To record the sale of IgWig Inc. to underwriters)	361350000 3650000 -	- - 365000000

.

( 2 ) -- Prepare the appropriate journal entries to record the first semiannual interest payment for both issues.

Answer -

Event	General Journal	Debit ($)	Credit ($)
1.	Interest expense [($215000000*7.61%) / 2] Cash (To record the first semiannual payment for National Equipment Transfer Corporation)	8180750 -	- 8180750
2.	Interest expense [($361350000*6.46%) / 2] Discount on notes payable [balancing figure] Cash [($365000000*6.46%) / 2] (To record the first semiannual payment for IgWig Inc.)	11671605 117895 -	- - 11789500