Bond Discount, Entries for Bonds Payable Transactions

On July 1, 2014, Brower Industries Inc. issued $8,400,000 of 8-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $7,944,814. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 2014. For a compound transaction, if an amount box does not require an entry, leave it blank.

Cash	$7,944,814
Discount on Bonds Payable
Premium on Bonds Payable		$8,400,000

2. Journalize the entries to record the following: For a compound transaction, if an amount box does not require an entry, leave it blank.

a. The first semiannual interest payment on December 31, 2014, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)

Interest Expense
Discount on Bonds Payable
Cash

b. The interest payment on June 30, 2015, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)

Interest Expense
Discount on Bonds Payable
Cash

3. Determine the total interest expense for 2014. Round to the nearest dollar. $ _______________

4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?

Yes or No

5. Compute the price of $7,944,814 received for the bonds by using Table 1 and Table 2. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.

Present value of the face amount	$________
Present value of the semi-annual interest payments	$________
Price received for the bonds $__________