Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer
ID: 2436322 • Letter: B
Question
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued $5,300,000 of 7-year, 11% bonds at a market (effective) interest rate of 12%, receiving cash of $5,053,677. 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 Feedback Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. Learning Objective 2. 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 Feedback Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. Learning Objective 2. 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.) Feedback Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. Learning Objective 2. 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 $5,053,677 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 $
Explanation / Answer
2a first semiannual interest payment [$5300000 * 11%/2] = $291500
3. total interest expense for Year 1 = $309095
4. yes, if contract rate is less than the market rate of interest that means bond is issued at discount (less than par value of bond)
Date Accounts title Dr Cr Year 1 July 1 Cash 5,053,677 Discount on bond payable 246323 To Bonds payable $5,300,000 December 31 Interest expense 309095 To Discount on bond payable[246323/14 months] 17595 To cash [$5300000 * 11%/2] 291500 Year 2 June 30, Interest expense 309095 To Discount on bond payable[246323/14 months] 17595 To cash [$5300000 * 11%/2] 291500