On July 1, 2016 Merideth Industries Inc. issued a $28,500,000 of 10-year, 8% bon
ID: 2475174 • Letter: O
Question
On July 1, 2016 Merideth Industries Inc. issued a $28,500,000 of 10-year, 8% bonds at a market (effective) intrest rate of 9% recieving cash of $26,646,292. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Part 1.) Journalize the entry to record the amount of cash prodeeds from the issuance of the bonds.
Part 2.) Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2016 and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2017, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
Part 3.) Determine the total interst expesnse for 2016.
Explanation / Answer
Cash dr 26,646,842
Discount on bonds dr 1,853,708
Bonds Payable 2,850,000
(Being bonds are issued)
Interest exp dr 1232685
Discount on bonds payable cr (1853708/20) 92685
Interest exp payable (28500000*0.08)/2 1,140,000
(Being interest & disc on bond accrued)
Interest exp payable dr 1,140,000
Discount on bonds payable cr (1853708/20) 92,685
Cash cr (28500000*0.08)/2 1232685
(Being interest & disc on bond paid)
Interest exp for 6 month period is $ 1,232,685 (1,140,000 + 92,685)
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