Question
Campbell Inc. produces and sells outdoor equipment. On July 1, 20Y1, Campbell issued $84,100,000 of 10-year,...
Campbell Inc. produces and sells outdoor equipment. On July 1, 20Y1, Campbell issued $84,100,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $94,580,761. 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 on July 1, 20Y1.* | ||||
| 2. | Journalize the entries to record the following:*
|
||||
| 3. | Determine the total interest expense for 20Y1. | ||||
| 4. | Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest? | ||||
| 5. | Compute the price of $94,580,761 received for the bonds by using the present value tables. (Round to the nearest dollar.) |
3. Determine the total interest expense for 20Y1. Enter amount as a positive number.
4. Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest?
Yes
No
5. Compute the price of $94,580,761 received for the bonds by using the present value tables. Round to the nearest dollar.
| Present value of the face amount | |
| Present value of the semiannual interest payments | |
| Price received for the bonds |
Homework Answers
Answer #1
1) Journal entries
| Date | General Journal | Debit | Credit |
| Jan 1 | Cash | 94580761 | |
| Premium on bonds payable | 10480761 | ||
| Bonds payable | 84100000 |
2) Journal entries
| Date | General Journal | Debit | Credit |
| Dec 31 | Interest expense | 4521962 | |
| Premium on bonds payable (10480761/20) | 524038 | ||
| Cash (84100000*12%*6/12) | 5046000 | ||
|
June 30 |
Interest expense | 4521962 | |
| Premium on bonds payable | 524038 | ||
| Cash | 5046000 |
3) Total interest expense = $4521962
4) Yes
5) Issue price of bonds
Round to the nearest dollar.
| Present value of the face amount (84100000*0.37689) | 31696449 |
| Present value of the semiannual interest payments (5046000*12.46221) | 62884312 |
| Price received for the bonds | 94580761 |
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