Question

Bond Premium, Entries for Bonds Payable Transactions

Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $65,600,000 of 10-year, 13% bonds at a market (effective) interest rate of 11%, receiving cash of $73,439,508. 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.

	Cash	fill in the blank dd81ce05806701d_2	fill in the blank dd81ce05806701d_3
	Premium on Bonds Payable	fill in the blank dd81ce05806701d_5	fill in the blank dd81ce05806701d_6
	Bonds Payable	fill in the blank dd81ce05806701d_8	fill in the blank dd81ce05806701d_9

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.

	Interest Expense	fill in the blank 119cc30c303900d_2	fill in the blank 119cc30c303900d_3
	Premium on Bonds Payable	fill in the blank 119cc30c303900d_5	fill in the blank 119cc30c303900d_6
	Cash	fill in the blank 119cc30c303900d_8	fill in the blank 119cc30c303900d_9

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.

	Interest Expense	fill in the blank 06adbf014fabfe2_2	fill in the blank 06adbf014fabfe2_3
	Premium on Bonds Payable	fill in the blank 06adbf014fabfe2_5	fill in the blank 06adbf014fabfe2_6
	Cash	fill in the blank 06adbf014fabfe2_8	fill in the blank 06adbf014fabfe2_9

3. Determine the total interest expense for Year 1. Round to the nearest dollar.
$fill in the blank 80c09cf3100bfc7_1

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

5. Compute the price of $73,439,508 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.

Present value of the face amount	$fill in the blank 80c09cf3100bfc7_3
Present value of the semiannual interest payments	fill in the blank 80c09cf3100bfc7_4
Price received for the bonds	$fill in the blank 80c09cf3100bfc7_5

Answer 1

Solution 1:
Journal Entries - Rodgers Corporation
Event	Particulars	Debit	Credit
1	Cash Dr	$73,439,508.00
	To Bond Payable		$65,600,000.00
	To Premium on Bond Payable		$7,839,508.00
	(To record issue of bonds)

Solution 2:
Journal Entries - Rodgers Corporation
Event	Particulars	Debit	Credit
a	Interest expense Dr	$3,872,025.00
	Premium on bond payable Dr ($7,839,508/20)	$391,975.00
	To Cash ($65,600,000*13%*6/12)		$4,264,000.00
	(To record semiannual interest payment and premium amortization)
b	Interest expense Dr	$3,872,025.00
	Premium on bond payable Dr ($7,839,508/20)	$391,975.00
	To Cash ($65,600,000*13%*6/12)		$4,264,000.00
	(To record semiannual interest payment and premium amortization)

Solution 3: Interest expense for 20Y1 = $3,872,025 Solution 4: Yes, bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest

Solution 5:
Computation of bond price
Table values are based on:
n=	20
i=	5.50%
Cash flow	Table Value	Amount	Present Value
Present value of face amount	0.34273	$65,600,000.00	$22,483,088
Present value of semiannual interest	11.95038	$4,264,000.00	$50,956,420
Price received for the bonds			$73,439,508