Question

Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1. Campbell issued $60,400,000 of...

Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1. Campbell issued $60,400,000 of 10-year, 6% bonds at a market (effective) interest rate of 5%, receiving cash of $65,107,866. 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.* 2. Journalize the entries to record the following:* a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) b. The interest payment on June 30, Year 2, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) 3. Determine the total interest expense for Year 1. *Refer to the Chart of Accounts for exact wording of account titles. CHART OF ACCOUNTSCampbell, Inc.General Ledger

ASSETS
110 Cash
111 Petty Cash
121 Accounts Receivable
122 Allowance for Doubtful Accounts
126 Interest Receivable
127 Notes Receivable
131 Merchandise Inventory
141 Office Supplies
142 Store Supplies
151 Prepaid Insurance
191 Land
192 Store Equipment
193 Accumulated Depreciation-Store Equipment
194 Office Equipment
195 Accumulated Depreciation-Office Equipment
LIABILITIES
210 Accounts Payable
221 Salaries Payable
231 Sales Tax Payable
232 Interest Payable
241 Notes Payable
251 Bonds Payable
252 Discount on Bonds Payable
253 Premium on Bonds Payable
EQUITY
311 Common Stock
312 Paid-In Capital in Excess of Par-Common Stock
315 Treasury Stock
321 Preferred Stock
322 Paid-In Capital in Excess of Par-Preferred Stock
331 Paid-In Capital from Sale of Treasury Stock
340 Retained Earnings
351 Cash Dividends
352 Stock Dividends
390 Income Summary
REVENUE
410 Sales
610 Interest Revenue
611 Gain on Redemption of Bonds
EXPENSES
510 Cost of Merchandise Sold
515 Credit Card Expense
516 Cash Short and Over
521 Sales Salaries Expense
522 Office Salaries Expense
531 Advertising Expense
532 Delivery Expense
533 Repairs Expense
534 Selling Expenses
535 Rent Expense
536 Insurance Expense
537 Office Supplies Expense
538 Store Supplies Expense
541 Bad Debt Expense
561 Depreciation Expense-Store Equipment
562 Depreciation Expense-Office Equipment
590 Miscellaneous Expense
710 Interest Expense
711 Loss on Redemption of Bonds

Homework Answers

Answer #1

Journal entries

Date account and explanation debit credit
July 1 Cash 65107866
Premium on bonds payable 4707866
Bonds payable 60400000
(To record bond issue)
Dec 31 Interest expense (65107866*2.5%) 1627697
Discount on bonds payable 184303
Cash (60400000*3%) 1812000
(To record interest)
June 30 Interest expense (64923563*2.5%) 1623089
Discount on bonds payable 188911
Cash 1812000
(TO record interest)

c) Total interest expense for year 1 = $1627697

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