On April 1, 2015, Dot Equipment Ltd., a heavy equipment distributor, issued $50,000,000 of five-year, 5% bonds. The bonds, which pay interest on October 1 and April 1, were issued at an effective interest rate of 6%, resulting in Dot Equipment receiving cash of $47,867,449.29. The bond discount is amortized using the effective interest method of amortization.
a. Journalize the entries to record the following:
1. Sale of the bonds.
2. First semiannual interest payment and discount amortization.
3. Adjusting entry for interest expense at the October 31 year-end. (Take 1/6 of the amounts from the April 1, 2016 payment.)
4. Second semiannual interest payment and discount amortization.
b. Determine the amount of bond interest expense for the fiscal year ended October 31, 2015.
c. Determine the carrying amount of the bonds at the October 31, 2015, year-end.