Question

When companies offer new debt security issues, they publicize the offerings in the financial press and on Internet sites. Assume the following were among the debt offerings reported in December 2021:

New Securities Issues

Corporate

National Equipment Transfer Corporation—$219 million bonds via lead managers Second Tennessee Bank N.A. and Morgan, Dunavant & Co., according to a syndicate official. Terms: maturity, Dec. 15, 2030; coupon 7.65%; issue price, par; yield, 7.65%; noncallable; debt ratings: Ba-1 (Moody's Investors Service, Inc.), BBB+ (Standard & Poor's).

IgWig Inc.—$369 million of notes via lead manager Stanley Brothers, Inc., according to a syndicate official. Terms: maturity, Dec. 1, 2032; coupon, 6.4%; Issue price, 99; yield, 6.5%; call date, NC; debt ratings: Baa-1 (Moody's Investors Service, Inc.), A (Standard & Poor's).

Required:
1. Prepare the appropriate journal entries to record the sale of both issues to underwriters. Ignore share issue costs and assume no accrued interest.
2. Prepare the appropriate journal entries to record the first semiannual interest payment for both issues.

Prepare the appropriate journal entries to record the first semiannual interest payment for both issues. (Do not round your intermediate calculations. Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1	Date	Account titles and explanation					Debit	Credit
							($ in millions)
	2021
	Dec.	Cash					219
		Bonds payable						219
		(Bonds issued)
	Dec.	Cash				(369*90%)	332.1
		Discount on notes payable				(369-332.1)	36.9
		Note payable						369
		(Notes issued at discount)
2	Date	Account titles and explanation					Debit	Credit
							($ in millions)
	2022
		Interest expense				(219*7.65%*6/12)	8.37675
		Cash						8.37675
		(Interest paid on bonds)
		Interest expense				(332.1*6.5%*6/12)	10.79325
		Discount on notes payable				(11.808-10.79325)	1.01475
		Cash				(369*6.4%*6/12)		11.808
		(Interest paid on notes)