Question

Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Discount

On July 1, Year 1, Danzer Industries Inc. issued $63,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $50,403,780. 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

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.
$

Answer 1

Hi

Let me know in case you face any issue: