Question

On July 1, Year 1, Danzer Industries Inc. issued $30,000,000 of 10-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $28,130,684. 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.* 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.) 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.) 3. Determine the total interest expense for Year 1. *Refer to the Chart of Accounts for exact wording of account titles.

1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds.

2a. Journalize the entry to record 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.)

3. Determine the total interest expense for Year 1

Answer 1

Solution 1:

Journal Entries - Danzer Industries
Date	Particulars	Debit	Credit
July 1 Year 1	Cash A/c Dr	$2,81,30,684
	Discount on Bond Payable Dr	18,69,316
	To bonds payable		$3,00,00,000
	(Being bond issued at discount)

Solution 2a and 2b:

(a) Journal Entries - Danzer Industries
Date	Particulars	Debit	Credit
Dec 31, Year 1	Interest Expense Dr ($28130684*10%*6/12)	$14,06,534
	To Discount on Bond Payable		$56,534
	To Cash ($30,000,000*9%*6/12)		$13,50,000
	(To record first payment of Interest and Amortization of discount on issue)
(b) Journal Entries - Danzer Industries
Date	Particulars	Debit	Credit
June 30, Year 2	Interest Expense Dr [($28130684+ $56534)*10%*6/12]	$14,09,361
	To Discount on Bond Payable		$59,361
	To Cash ($30,000,000*9%*6/12)		$13,50,000
	(To record second payment of Interest and Amortization of discount on issue)

Solution 3:

Total Interest expense for Year 1 = $1,406,534