Question

Bond Premium, Entries for Bonds Payable Transactions Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $65,000,000 of 10 year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $73,100,469. 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 Cash 73,100469 Premium on Bonds Payable 3.100.469 Bonds Payable 65,000,000 Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account The straight-line method of amortization provides equal amounts of amortization over the life of the bond 2. Journalize the entries to record the following: . 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 nearnt dollar

Answer 1

In half year interest payment, interest rate gets half and period gets double.

Calculation of Bond Price:
Half year interest * pvifa(5%,20) + Par value * pvif(5%, 20)
(65000000 * 6%) *12.4622 + 65000000 * 0.3769 = 73,101,080 or 73,100,469
Premium = 73100469 - 65000000 = 8100469
Half yearly amortisation amount = 8100469/20 = 405023.50
1) JE is correct.
2a) First semi annual interest payment on Dec 31, year 1:
Date	Acc Title	Debit $	Credit $
Dec 31, Yr 1	Interest expense	3494976.5
	Premium on Bonds payable	405023.5
	Cash		3900000
2b) Semi annual interest payment on June 30, year 2:
Date	Acc Title	Debit $	Credit $
June 30, Yr 2	Interest expense	3494976.5
	Premium on Bonds payable	405023.5
	Cash		3900000
3) The total interest expense for year 1: $3494976.50
4) YES
5) As calculated in the beginning.
Present value of the face amount = $ 24498500
Present value of the semi-annual interest payments = $ 48602580
Price received for the bonds = $ 73101080 or $73100469