Chapter 14 Long Term Liabilities: Bonds and Notes 713 Year 3 June 30. Recorded t

Question

Chapter 14 Long Term Liabilities: Bonds and Notes 713 Year 3 June 30. Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $9,420,961 after payment of interest and amor tization of discount have been recorded. Record the redemption only Sept. 30. Paid the second annual payment on the note, which consisted of interest $10,280 and principal of $30,393. Instructions 1. Journalize the entries to record the foregoing transactions. Round all amounts to the nearest dollar. 2. Indicate the amount of the interest e xpense in (a) Year 1 and (b) Year 2. 3. Determine the carrying amount of the bonds as of December 31, Year 2. Appendix 1 and Appendix 2 PR 14-5A Bond discount, entries for bonds payable transactions, interest method of amortizing bond discount On July 1, Year 1, Danzer Industries Inc. issued Sio,000,000 of 10-year, 7% bonds a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bor ually on December 31 and June 30. The fiscal year of the compa

Explanation / Answer

Year 1 Jul-01 Cash 63532267 Discount on bonds payable 10467733 Bonds payable 74000000 Oct-01 Cash 200000 Notes payable 200000 Dec-31 Interest expense 3000 Interest payable 3000 Dec-31 Interest expense 4331693 Discount on bonds payable 261693 Cash (74000000*11%*1/2) 4070000 Year 2 Jun-30 Interest expense 4331693 Discount on bonds payable 261693 Cash (74000000*11%*1/2) 4070000 Sep-30 Interest expense 9000 Interest payable 3000 Notes payable 28673 Cash 40673 Dec-31 Interest expense 2570 Interest payable 2570 Dec-31 Interest expense 4331693 Discount on bonds payable 261693 Cash (74000000*11%*1/2) 4070000 Year 3 Bonds payable 74000000 Jun-30 Discount on bonds payable 9420961 Loss on redemption of bonds 7940961 Cash (74000000*98%) 72520000 Sep-30 Interest expense 7710 Interest payable 2570 Notes payable 30393 Cash 40673 2) Interest expense: Year 1 = 3000+4331693 = 4334693 Year 2 = 4331693+9000+2570+4331693 = 8674956 3) Carrying amount of bonds as at December 31, of year 2. Bonds payable 74000000 Less: Discount on bonds payable = 10467733-261693*3 = 9682654 Carrying amount of bonds as at December 31, of year 2. 64317346

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