Question

Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1. Campbell issued $84,100,000 of 10-year, 8% bonds at a market (effective) interest rate of 6%, receiving cash of $96,612,297. 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.*
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 interest method. (Round to the nearest dollar.) b. The interest payment on June 30, Year 2, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.)
3.	Determine the total interest expense for Year 1. *Refer to the Chart of Accounts for exact wording of account titles. CHART OF ACCOUNTS Campbell, Inc. General Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes Receivable 131 Merchandise Inventory 141 Office Supplies 142 Store Supplies 151 Prepaid Insurance 191 Land 192 Store Equipment 193 Accumulated Depreciation-Store Equipment 194 Office Equipment 195 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Salaries Payable 231 Sales Tax Payable 232 Interest Payable 241 Notes Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary REVENUE 410 Sales 610 Interest Revenue 611 Gain on Redemption of Bonds EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 516 Cash Short and Over 521 Sales Salaries Expense 522 Office Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 541 Bad Debt Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 711 Loss on Redemption of Bonds 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. 2a. Journalize the entry to record the first semiannual interest payment on December 31, Year 1, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) Refer to the Chart of Accounts for exact wording of account titles. PAGE 10 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2 3 4 5 6 2b. Journalize the entry to record the interest payment on June 30, Year 2, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) PAGE 10 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2 3 3. Determine the total interest expense for Year 1.

Answer 1

Solution 1:

Journal Entries - Campbell Inc.
Date	Particulars	Debit	Credit
July 1, Year 1	Cash Dr	$96,612,297
	To Bond Payable		$84,100,000
	To Premium on bond payable		$12,512,297
	(Being bond issued at premium)

Solution 2 a&b:

Journal Entries - Campbell Inc.
No.	Date	Particulars	Debit	Credit
(a)	Dec 31, Year 1	Interest Expense Dr ($96,612,297*6%*6/12)	$2,898,369
		Premium on bond payable Dr	$465,631
		To Cash ($84,100,000*8%*6/12)		$3,364,000
		(Being interest paid and premium amortized)
(b)	June 30, Year 2	Interest Expense Dr [($96,612,297-$465,631)*6%*6/12]	$2,884,400
		Premium on bond payable Dr	$479,600
		To Cash ($84,100,000*8%*6/12)		$3,364,000
		(Being interest paid and premium amortized)

Solution 3:

Total Interest expense for Year 1 = $2,898,369