Question

1. Rodgers Corporation produces and sells football equipment. On July 1, 20Y1, Rodgers issued $27,500,000 of 10-year, 13% bonds at a market (effective) interest rate of 11%, receiving cash of $30,786,379. 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, 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, 20Y1.

   Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable Accounts Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable Accounts Payable Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Feedback 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. Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Interest Receivable Bonds Payable Cash Discount on Bonds Payable Interest Payable Interest Receivable Premium on Bonds Payable Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable 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. Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Interest Receivable Bonds Payable Cash Discount on Bonds Payable Interest Payable Interest Receivable Premium on Bonds Payable Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable Feedback 3. Determine the total interest expense for 20Y1. Round to the nearest dollar. $ 4. Will the bond proceeds always be greater than the face amount of the bonds when the The periodic interest to be paid on the bonds that is identified in the bond indenture; expressed as a percentage of the face amount of the bond.contract rate is greater than the The rate determined from sales and purchases of similar bonds.market rate of interest? Yes No 5. Compute the price of $30,786,379 received for the bonds by using the present value tables in Appendix A. Round your PV values to 5 decimal places and the final answers to the nearest dollar. Your total may vary slightly from the price given due to rounding differences. Present value of the face amount $ Present value of the semi-annual interest payments Price received for the bonds $

Answer 1

1	Date	Account Titles and Explanation	Debit	Credit
	July 1, 20Y1	Cash	$30,786,379
		Bonds Payable		$27,500,000
		Premium on Bonds Payable		$3,286,379
2
	Dec31, 20Y1	Interest Expense	$1,623,181
		Premium on Bonds Payable	$164,319		($3,286,379/10 years x 1/2
		Cash		$1,787,500	($27,500,000 x 13% x 1/2)
	Dec31, 20Y1	Interest Expense	$1,623,181
		Premium on Bonds Payable	$164,319		($3,286,379/10 years x 1/2
		Cash		$1,787,500	($27,500,000 x 13% x 1/2)
3	$1,623,181
4	Yes
5
	Present value of the face amount
	$27,500,000 x 0.34273		$9,425,075
	Present value of the semi-annual interest payments
	$1,787,500 x 11.95038		$21,361,304
	Price received for the bonds		$30,786,379