When companies offer new debt security issues, they publicize the offerings in t

Question

When companies offer new debt security issues, they publicize the offerings in the financial press and on Internet sites. Assume the following were among the debt offerings reported in December 2018: New Securities Issues Corporate National Equipment Transfer Corporation —$201 million bonds via lead managers Second Tennessee Bank N.A. and Morgan, Dunavant & Co., according to a syndicate official. Terms: maturity, Dec. 15, 2024; coupon 7.47%; issue price, par; yield, 7.47%; noncallable, debt ratings: Ba-1 (Moody's Investors Service, Inc.), BBB + (Standard & Poor's). IgWig Inc. —$351 million of notes via lead manager Stanley Brothers, Inc., according to a syndicate official. Terms: maturity, Dec. 1, 2026; coupon, 6.22%; Issue price, 99; yield, 6.32%; call date, NC; debt ratings: Baa-1 (Moody's Investors Service, Inc.), A (Standard & Poor's).

Required: 1. Prepare the appropriate journal entries to record the sale of both issues to underwriters. Ignore share issue costs and assume no accrued interest.

2. Prepare the appropriate journal entries to record the first semiannual interest payment for both issues.

Explanation / Answer

1 JOURNAL ENTRY FOR ISSUE OF SECURITIES ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Cash $201,000,000 Bond Payable $201,000,000 (To record issue of 7.47% bond at par) Cash $347,490,000 (0.99*351000000) Discount on notes payable $3,510,000 Notes Payable $351,000,000 (To record issue of 6.22% notes at 1% discount) 2 JOURNAL ENTRY FOR SEMIANNUAL INTEREST PAYMENT Interest expense $        7,507,350 (0.0747*201000000)/2 Cash $          7,507,350 (To record payment of semiannual interest payment on 7,47% Bond) Interest expense $11,135,475 Discount on notes payable $219,375 (3510000/16) maturity in 8 years(16 semiannual period) Cash $        10,916,100 (0.0622*351000000)/2 (To record interest paymenton 6.22% Notes)

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