Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amorti
ID: 2524282 • Letter: B
Question
Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Discount On July 1, Year 1, Danzer Industries Inc. issued $59,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $47,203,540. 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 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. 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 Interest Expense Discount on Bonds Payable Cash Feedback 2a. Cash received on July 1, Year 1 x semiannual market rate = Interest Expense (debit). Principal x semiannual contract rate = cash paid (credit). The premium amortized (debit) is the difference between the two amounts. 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 Interest Expense Discount on Bonds Payable Cash Feedback 2b. Cash received (- premium amortized Dec. 31, Year 1) x semiannual market rate = Interest Expense (debit). Principal x semiannual contract rate = cash paid (credit). The premium amortized (debit) is the difference between the two amounts. 3. Determine the total interest expense for Year 1. $ Feedback 3. Year 1 Interest expense is the amount debited in 2(a). Feedback Partially correct Check My Work
Explanation / Answer
In the books of Danzer Industries Inc. :
Total interest expense for Year 1 = $ 3,304,248.
Date Account Titles Debit Credit $ $ December 31, Year 1 Interest Expense ( 47,203,540 x 7%) 3,304,248 Discount on Bonds Payable 59,248 Cash 3,245,000 June 30, Year 2 Interest Expense ( 47,203,540 + 59,248) x 7% 3,308,395 Discount on Bonds Payable 63,395 Cash 3,245,000