Question

Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1. Campbell issued $21,000,000 of 10-year, 8% bonds at a market (effective) interest rate of 7%, receiving cash of $22,492,386. 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.

Answer 1

	Date	Accounting titles & Explanations					Debit	Credit
1)	1-Jul	Cash					22,492,386
		Premium on bonds payable						1,492,386
		Bonds payable						21,000,000
2)	31-Dec	interest expense		(22,492,386*3.5%)			787234
		Premium on bonds payable					52766
		Cash		(21,000,000*8%*1/2)				840000
	30-Jun	interest expense					785387
		Premium on bonds payable					54613
		Cash						840000
3)		total interest expense for year 1
						787234