# Bond premium, entries for bonds payable transactions Rodgers Corporation produces and sells football equipment. On July 1, 20Y1, Rodgers issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of$73,100,469. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 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. Round to the nearest dollar. b. The interest payment on June 30, 20Y2, and the amortization of the bond premium, using the straight-line method. Round to the nearest dollar. 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. (Appendix 1) Compute the price of $73,100,469 received for the bonds by using the present value tables in Appendix A at the end of the text. Round to the nearest dollar. BuyFindarrow_forward ### Financial And Managerial Accounting 15th Edition WARREN + 1 other Publisher: Cengage Learning, ISBN: 9781337902663 #### Solutions Chapter Section BuyFindarrow_forward ### Financial And Managerial Accounting 15th Edition WARREN + 1 other Publisher: Cengage Learning, ISBN: 9781337902663 Chapter 11, Problem 2PB Textbook Problem 1 views ## Bond premium, entries for bonds payable transactionsRodgers Corporation produces and sells football equipment. On July 1, 20Y1, Rodgers issued$65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $73,100,469. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.Instructions 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. Round to the nearest dollar. b. The interest payment on June 30, 20Y2, and the amortization of the bond premium, using the straight-line method. Round to the nearest dollar. 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. (Appendix 1) Compute the price of$73,100,469 received for the bonds by using the present value tables in Appendix A at the end of the text. Round to the nearest dollar.

1.

To determine

Prepare journal entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 20Y1.

### Explanation of Solution

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations. Premium on bonds payable: It occurs when the bonds are issued at a high price than the face value. Straight-line amortization method: It is a method of bond amortization that spreads the amount of the bond discount equally over the interest period. Prepare journal entry for cash proceeds from the issuance of the bonds on July 1, 20Y1.  Date Account Title and Explanation Post Ref Debit ($) Credit (\$) 20Y1 Cash Â 73,100,469 Â July 1 Â Premium on Bonds Payable (1) Â Â 8,100,469 Â Â Â Bonds Payable Â Â 65,000,000 Â Â Â Â (To record issue of bonds at premium) Â Â Â

Table (1)

• Cash is an asset and it is increased...

2. a.

To determine

Prepare journal entry to record first semiannual interest payment and amortization of bond premium on December 31, 20Y1.

2. b.

To determine

Prepare journal entry to record second interest payment and amortization of bond discount on June 30, 20Y2.

3.

To determine

Determine the amount of total interest expense for 20Y1.

4.

To determine

Explain the situation when contract rate of bond is greater than the market rate of interest.

5.

To determine

Calculate the amount of cash proceeds (present value) from the sale of the bonds using present value tables.

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