Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer
ID: 2535169 • Letter: B
Question
Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. issued $1,900,000 of 5-year, 996 bonds at a market (effective) interest rate of 10%, receiving cash of $1,826,637. 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 1,826,637V Discount on Bonds Payable 73,363 Bonds Payable 1.900,000V Feedback Check My Work 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.Explanation / Answer
Principal 1,900,000 interest 85500 Calculation of bond issue price Where i= 5% t= 10 year principal * PV of $1 at 5% for 10 yrs = 1,900,000 * 0.61391 = 1,166,429 interest * PV of ordinary annuity at 5%= 85500 * 7.72173 = 660,208 bond issue price 1,826,637