Bond Premium, Entries for Bonds Payable Transactions
Campbell Inc. produces and sells outdoor equipment. On July 1,Year 1, Campbell issued $15,000,000 of 10-year, 10% bonds at amarket (effective) interest rate of 8%, receiving cash of$17,038,598. Interest on the bonds is payable semiannually onDecember 31 and June 30. The fiscal year of the company is thecalendar year.
Required:
If an amount box does not require an entry, leave it blank.
1. Journalize the entry to record the amount ofcash proceeds from the issuance of the bonds on July 1, Year 1.
2. Journalize the entries to record thefollowing:
a. The first semiannual interest payment on December 31, Year 1,and the amortization of the bond premium, using the straight-linemethod. (Round to the nearest dollar.)
| Interest Expense | | |
| Premium on Bonds Payable | | |
| Cash | | |
b. The interest payment on June 30, Year 2, and the amortizationof the bond premium, using the straight-line method. (Round to thenearest dollar.)
| Interest Expense | | |
| Premium on Bonds Payable | | |
| Cash | | |
3. Determine the total interest expense forYear 1. Round to the nearest dollar.
$
4. Will the bond proceeds always be greaterthan the face amount of the bonds when the contract rate is greaterthan the market rate of interest?
Yes
5. Compute the price of $17,038,598 receivedfor the bonds by using Exhibit 5 and Exhibit 7. (Round to thenearest dollar.) Your total may vary slightly from the price givendue to rounding differences.
| Present value of the face amount | $ |
| Present value of the semi-annual interest payments | $ |
| Price received for the bonds | $ |
