On July 1, Year 1, Danzer Industries Inc. issued $37,400,000 of 10-year, 11% bonds at a market (effective) interest rate of 13%, receiving cash of $33,279,195. 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.

Bonds defined as the units of the corporate debt issued through the companies as well as securitized as the tradeable assets. And it is states as the fixed income instrument.1. The journal entry as follows: Date Particulars Debit Credit July,1 , Year 1 Cash Discount on bonds payable Bonds Payable (Being cash proceeds from bonds issuance) $33,279,195 $4,120,805 $37,400,000 2. a. Date Particulars Debit Credit December 31, Year 1 Interest expense Discount on bonds Cash (Being interest payment is made) $1,850,960 $206,040 $2,057,000 Working Notes: Cash amount is computed as: Cash = Bonds issued price ×Interest rate2=$37,400,000 ×11%2=$2,057,000 Note: Divide by 2 as paid semi annually Discount on bond amount is computed as: Discount on bond = Discount amount Number of years ×2=$4,120,80510 ×2=$206,040 Note: In semiannual, the number of years got doubled. b. Date Particulars Debit Credit June 30, Year 2 Interest expense Discount on bonds Cash (Being interest payment is made) $1,850,960 $206,040 $2,057,000 c. The aggregate interest for Year 1 is $1,850,960

Answered: On July 1, Year 1, Danzer Industries…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On July 1, Year 1, Danzer Industries Inc. issued $37,400,000 of 10-year, 11% bonds at a market (effective) interest rate of 13%, receiving cash of $33,279,195. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Required:

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

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.)

Determine the total interest expense for Year 1.

*Refer to the Chart of Accounts for exact wording of account titles.

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