Question

On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. 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

Answer 1

Answer:

Debit Cash for $37,282,062

Debit Bond discount for $2,717,938

Credit Bond payable for $40,000,000

Explanation:

Danzer Industries Inc.

Details                                        Dr ($)                    Cr ($)       .

Cash                                     37,282,062

Bond discount                         2,717,938

Bond payable                                                    40,000,000

To record bond issued at a discount.                                       .

Note:

Bond discount = Bond payable - Cash proceeds = $40,000,000 - $37,282,062 = $2,717,938.