Question

Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1. Campbell issued $14,000,000 of 10-year, 11% bonds at a market (effective) interest rate of 9%, receiving cash of $15,821,074. 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.

Answer 1

AMORTIZATION TABLE
DATE	INTEREST	INTEREST		PREMIUM	UNAMORTIZED		CARRYING VALUE
	CASH PAID	EXPENSE		AMORTIZED	PREMIUM		OF BONDS
DEC 31 YEAR1	770,000	711948		58,052	1763022		15763022
JUNE30 YEAR2	770,000	709336		60,664	1702358		15702358
Journal Entries:
Date	Accounts title and explanations				Debit $	Credit $
JULY1 Year-1	Cash Account Dr.				15,821,074
	Bonds Payable					14,000,000
	Premium on Bonds payable					1,821,074
DEC31 Year-1	Interest expense Dr.				711948
	Premium on Bonds payable Dr.				58052
	Cash Account					770000
JUNE 30 Year-2	Interest expense Dr.				709336
	Premium on Bonds payable Dr.				60664
	Cash Account					770000
Total Expense for year-1:		$711,948