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.

		fill in the blank dd81ce05806701d_2	fill in the blank dd81ce05806701d_3
		fill in the blank dd81ce05806701d_5	fill in the blank dd81ce05806701d_6
		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.

		fill in the blank 119cc30c303900d_2	fill in the blank 119cc30c303900d_3
		fill in the blank 119cc30c303900d_5	fill in the blank 119cc30c303900d_6
		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.

		fill in the blank 06adbf014fabfe2_2	fill in the blank 06adbf014fabfe2_3
		fill in the blank 06adbf014fabfe2_5	fill in the blank 06adbf014fabfe2_6
		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?

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

1)

Date	Account titles and explanation	Debit	Credit
July 1, Year 1	Cash	$73439508
	Bonds payable		$65600000
	Premium on bonds payable (73439508-65600000)		$7839508
	(To record issuance of bonds)

2-a)

Date	Account titles and explanation	Debit	Credit
Dec 31, Year 1	Interest expense (4264000-391975)	$3872025
	Premium on bonds payable (7839508/20)	$391975
	Cash (65600000*13%*6/12)		$4264000
	(To record interest payment and amortization of premium)

b)

Date	Account titles and explanation	Debit	Credit
June 30, Year 2	Interest expense (4264000-391975)	$3872025
	Premium on bonds payable (7839508/20)	$391975
	Cash (65600000*13%*6/12)		$4264000
	(To record interest payment and amortization of premium)

3) Total interest expense for Year 1= $3872025

4) Yes, 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)

Present value of the face amount (65600000*0.34273)	$22483088
Present value of the semiannual interest payments (4264000*11.95038)	50956420
Price received for the bonds	$73439508

0.34273, is the Present value of $1, n= 20 (10*2), i= 5.5% (11%/2)

11.95038, is the Present value of ordinary annuity of $1, n= 20 (10*2), i= 5.5% (11%/2)

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