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Solve the follwing problem. On July 1, Year 1, Danzer Industries Inc. issued $43,200,000 of 10-year, 9% bonds at a market (effective) interest rate of
Solve the follwing problem.
On July 1, Year 1, Danzer Industries Inc. issued $43,200,000 of 10-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $40,508,184. 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.* | ||||
2. | Journalize the entries to record the following:*
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3. | Determine the total interest expense for Year 1. | ||||
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 $40,508,184 received for the bonds by using the present value tables. (Round to the nearest dollar.)
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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 |
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