Question

Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $66,400,000 of 10-year, 13% bonds at a market (effective) interest rate of 11%, receiving cash of $74,335,112. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Required:

For all journal entries with a compound transaction, if an amount box does not require an entry, leave it blank.

1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1.

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 straight-line method. Round to the nearest dollar.

b. The interest payment on June 30, Year 2, and the amortization of the bond premium, using the straight-line method. Round to the nearest dollar.

3. Determine the total interest expense for Year 1. Round to the nearest dollar.

4. Compute the price of $74,335,112 received for the bonds by using Table 1, Table 2, Table 3 and Table 4. Round to the nearest dollar. Your total may vary slightly from the price given due to rounding differences.

http://www.mediafire.com/view/ukkm7b8mptml8ud/table1.jpg

http://www.mediafire.com/view/fyvk6cmvlds9tm3/table2.jpg

http://www.mediafire.com/file/y5hja7nop6ciyxn/table3.jpg

http://www.mediafire.com/view/s3cd10judz34hmj/table4.jpg

Present value of the face amount	$
Present value of the semi-annual interest payments	$
Price received for the bonds	$

Answer 1

		Debit	Credit
1)	cash	74335112
	Premium on bonds payable		7935112		Difference between face value and cash recd is premium
	Bonds Payable		66400000
2 a)	Interest on bonds payable	3919244
	premium on bonds payable	396756			the amortised premium is deducted from interest
	cash		4316000
b)	Interest on bonds payable	3919244			the amortised premium is deducted from interest
	premium on bonds payable	396756
	cash		4316000
3)	total interest expense for the year = 3919244*2=			7838488
4)	present value of the face amount =				22757272		use 11%/2 ie 5.5% as rate and 20 periods
	Present value of the semi annual interest payments =				51577840.08		use 11%/2 ie 5.5% as rate and 20 periods
	price received for the bonds				74335112.08

Working:

		Debit	Credit
1)	cash	74335112
	Premium on bonds payable		=C2-66400000		Difference between face value and cash recd is premium
	Bonds Payable		66400000
2 a)	Interest on bonds payable	=ROUND((6.5%*66400000)-(7935112/20),0)
	premium on bonds payable	=ROUND(7935112/20,0)			the amortised premium is deducted from interest
	cash		=6.5%*66400000
b)	Interest on bonds payable	=ROUND((6.5%*66400000)-(7935112/20),0)			the amortised premium is deducted from interest
	premium on bonds payable	=ROUND(7935112/20,0)
	cash		=6.5%*66400000
3)	total interest expense for the year = 3919244*2=			=C10*2
4)	present value of the face amount =				=66400000*0.34273		use 11%/2 ie 5.5% as rate and 20 periods
	Present value of the semi annual interest payments =				=4316000*(11.95038)		use 11%/2 ie 5.5% as rate and 20 periods
	price received for the bonds				=SUM(F17:F18)