Campbell Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell issued $31,800,000 of 10-year
Question:
Campbell Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell issued $31,800,000 of 10-year 12% bonds at an 11% market (effective) interest rate and received $33,700,139 in cash. Interest on the bonds is payable semi-annually on December 31 and June 30. The company's fiscal year is the calendar year.
Required:
If a quantity box does not require an entry, leave it blank.
1. Journalize the entry to record the amount of cash proceeds from the bond issue on July 1 of Year 1.
Money | |||
Premium on Bonds Payable | |||
Obligations with the public |
Comment
Bonds payable are always recorded at face value. Any difference in the issue price is reflected in a premium or discount account.
The straight-line amortization method provides equal amounts of amortization over the life of the bond.
Learning objective 2.
2. Make journal entries to record the following:
to. The first semi-annual interest payment on December 31 of Year 1 and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)
Interest expenses | |||
Premium on Bonds Payable | |||
Money |
Comment
Bonds payable are always recorded at face value. Any difference in the issue price is reflected in a premium or discount account.
The straight-line amortization method provides equal amounts of amortization over the life of the bond.
Learning objective 2.
b. The payment of interest on June 30 of year 2 and the amortization of the bond premium, by the straight-line method. (Round to the nearest dollar.)
Interest expenses | |||
Premium on Bonds Payable | |||
Money |
Comment
Bonds payable are always recorded at face value. Any difference in the issue price is reflected in a premium or discount account.
The straight-line amortization method provides equal amounts of amortization over the life of the bond.
Learning objective 2.
3. Determine the total interest expense for Year 1. Round to the nearest dollar.
$
4. Will the proceeds from the bonds always be greater than the face value of the bonds when the contract rate is greater than the market interest rate?
Yeah
5. Calculate the $33,700,139 price received for the bonds using Schedule 5 and Schedule 7. (Round to the nearest dollar.) Your total may vary slightly from the given price due to rounding differences.
Present value of nominal amount | ps |
Present value of semi-annual interest payments | ps |
Price received for the bonds | ps |
Accounting
ISBN: 978-1337899451
27th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac