Question

Bond Premium, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Premium. Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell issued $64,000,000 of 20-year, 14% bonds at a market (effective) interest rate of 12%, receiving cash of $73,614,080. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Required: If an amount box does not require an entry, leave it blank or enter "0". 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. Year 1 July 1 Cash 0 Premium on bonds payable 0 0 Bonds payable 0 0 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. (If required, round your answers to the nearest dollar.) Year 1 Dec. 31 Interest expense 0 0 Premium on bonds payable 0 0 Cash 0 0 Feedback 2a. Cash received on July 1, Year 1 x semiannual market rate = Interest Expense (debit). Principal x semiannual contract rate = cash paid (credit). The premium amortized (debit) is the difference between the two amounts. b. The interest payment on June 30, Year 2, and the amortization of the bond premium, using the interest method. (Round your answers to the nearest dollar.) Year 2 June 30 Interest expense 0 0 Premium on bonds payable 0 0 Cash 0 0 Feedback 2b. Cash received (- premium amortized Dec. 31, Year 1) x semiannual market rate = Interest Expense (debit). Principal x semiannual contract rate = cash paid (credit). The premium amortized (debit) is the difference between the two amounts. 3. Determine the total interest expense for Year 1. $ Feedback 3. Year 1 Interest expense is the amount debited in 2(a).

Answer 1

a)
Date	Account Titles and Explanation	Debit	Credit
Year 1	Cash	$73,614,080.00
July 1	Premium on Bonds Payable		$9,614,080.00
	Bonds Payable		$64,000,000.00
b)
Dec 31	Interest Expense ($73,614,080 x 12%/2)	$4,416,844.80
	Premium on Bonds Payable (difference)	$63,155.20
	Cash ($64,000,000 x 14%/2)		$4,480,000.00
Year 2
Jun 30	Interest Expense ($73,614,080 - $63155.20 x 12%/2)	$4,413,055.49
	Premium on Bonds Payable(difference)	$66,944.51
	Cash ($64,000,000 x 14%/2)		$4,480,000.00
c)
Total interest expense for Year 1	$4,416,844.80