Campbell Inc. produces and sells outdoor equipment. On July 1, 20Y1, Campbell issued $40,000,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $42,601,480. 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: a. The first semiannual interest payment on December 31, 20Y1, and the amortization of the bond premium, using the straight-line method. b. The interest payment on June 30, 20Y2, and the amortization of the bond premium, using the straight-line method. 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 $42,601,480 received for the bonds by using the present value tables.
Campbell Inc. produces and sells outdoor equipment. On July 1, 20Y1, Campbell issued $40,000,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $42,601,480. 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: a. The first semiannual interest payment on December 31, 20Y1, and the amortization of the bond premium, using the straight-line method. b. The interest payment on June 30, 20Y2, and the amortization of the bond premium, using the straight-line method. 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 $42,601,480 received for the bonds by using the present value tables.
Financial Accounting
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter14: Long-term Liabilities: Bonds And Notes
Section: Chapter Questions
Problem 3PB
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Question
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1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 20Y1.
2a. Journalize the entry to record the first semiannual interest payment on December 31, 20Y1, and the amortization of the bond premium, using the straight-line method.
Compute the price of $42,601,480 received for the bonds by using the present value tables
Compute the price of $42,601,480 received for the bonds by using the present value tables
Transcribed Image Text:Campbell Inc. produces and sells outdoor equipment. On July 1, 20Y1, Campbell issued
$40,000,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of
$42,601,480. 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:
a. The first semiannual interest payment on December 31, 20Y1, and the amortization
of the bond premium, using the straight-line method.
b. The interest payment on June 30, 20Y2, and the amortization of the bond premium,
using the straight-line method.
3. Determine the total interest expense for 2011.
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 $42,601,480 received for the bonds by using the present value
tables.
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