Instruction

On July 1, Year 1, Danzer Industries Inc. issued $35,400,000 of 10-year, 12% bonds at a market (effective) interest rate of 14%, receiving cash of $31,649,745. 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.

CHART OF ACCOUNTSDanzer Industries Inc.General Ledger

	ASSETS
110	Cash
111	Petty Cash
121	Accounts Receivable
122	Allowance for Doubtful Accounts
126	Interest Receivable
127	Notes Receivable
131	Merchandise Inventory
141	Office Supplies
142	Store Supplies
151	Prepaid Insurance
191	Land
192	Store Equipment
193	Accumulated Depreciation-Store Equipment
194	Office Equipment
195	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Salaries Payable
231	Sales Tax Payable
232	Interest Payable
241	Notes Payable
251	Bonds Payable
252	Discount on Bonds Payable
253	Premium on Bonds Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
315	Treasury Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
610	Interest Revenue
611	Gain on Redemption of Bonds

	EXPENSES
510	Cost of Merchandise Sold
515	Credit Card Expense
516	Cash Short and Over
521	Sales Salaries Expense
522	Office Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
541	Bad Debt Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
711	Loss on Redemption of Bonds

Part Two

On July 1, Year 1, Danzer Industries Inc. issued $1,800,000 of 5-year, 8% bonds at a market (effective) interest rate of 10%, receiving cash of $1,661,003. 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.

2. Journalize the entries to record the following: If an amount box does not require an entry, leave it blank.

a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. (Round your answer to the nearest dollar.)

b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. (Round your answer to the nearest dollar.)

3. Determine the total interest expense for Year 1. 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?

5. Compute the price of $1,661,003 received for the bonds by using Exhibit 5 and Exhibit 7. (Round you PV values to 5 decimal places and the final answers 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	$

Part Two Picture

Journal 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds 2a. Journalize the entry to record 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 do Refer to the Chart of Accounts for exact wording of account titles. PAGE 10 ACCOUNTING EQUATION JOURNAL DATE DESCRIPTION POST, REF DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2b. Journalize the entry to record the interest payment on June 30, Year 2, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.) PAGE 10 ACCOUNTING EQUATION JOURNAL DATE DESCRIPTION POST, REF DEBIT CREDIT ASSETS LIABILITIES EQUITY Final Question 3. Determine the total interest expense for Year 1 Danzer Industries Inc. issued $1,800,000 of 5-year, 8 % bonds at a market (effective) interest rate cf 10%, receiving cash On July 1, Year $1,661,003. 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. I namount box does not require an entry, leave it blank. 2. Journalize the entries to record the following: If an amount box does not require an entry,, leave it blank. Year 1, and the amortization of the bond discount, using the straight-line method. (Round your answer a. The first semiannual interest payment on December othe nearest dollar.) EB bond discount, using the straight-line method. (Round your answer to the nearest dollar) h. The interest payment n June 30, Year. and the amortization of t Detemine the total interest expense for Year 1. Round to the nearest dollar. 4. Will the bond proceeds alwa t of the bonds when the contrat rate is less than the market rate of interest? e less than the face due to rounding differences 5. Compute the price of $1,661,003 received for the bonds by using Exhibit 5 and Exhibit 7. (Round you PV values to 5 decimal places and the final answers to the nearest dollar.) Your total may Present value of the face amount Present value of the semi-annual interest payments Price receiv for the bonds