Question

Rodgers Corporation produces and sells football equipment. On July 1, 20Y1, Rodgers issued $26,100,000 of 10-year, 14% bondsb. The interest payment on June 30, 2042, and the amortization of the bond premium, using the straight-line method. Round toPresent Value of $1 at Compound Interest Due Inn Periods Periods 4.0% 4.59 59 5.5% 69 6.5% 796 1 2 3 4 5 0.96154 0.92456 0.88

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Answer #1

Answer 1. The entry to record the amount of cash proceeds from the issuance of the bonds: -

Cash 27,537,998
Premium on Bonds Payable 1,437,998
Bonds Payable 26,100,000

Answer 2:

a. The entry to record the  first semiannual interest payment on December 31, 20Y1

Interest Expense 1,755,100
Premium on Bonds Payable ($1,437,998 / 20 semiannual period) 71,900
Cash ($26,100,000 * 14 % * 6/12) 1,827,000

b. The entry to record the  first semiannual interest payment on June 30, 20Y1

Interest Expense 1,755,100
Premium on Bonds Payable 71,900
Cash 1,827,000

Answer 3. Total interest expense for 20Y1 = $1,755,100.

Explanation:

The total interest expense for 20Y1 is the interest expense recorded on December 31, 20Y1 ie. $1,755,100

Answer 4. Yes.

Explanation:

The market interest rate is the rate which investors / bondholders desire to get the return or interest on their investment on bonds. Contract rate is the rate at which the bond issuer pays to the bondholders. If contract rate is more than the market interest rate, it means that the the bondholders are getting more interest than they desire or expects. In such a case, from issuing such bonds the issuer will get the bond proceeds more than the face value.

Answer 5.

Present value of the face amount ($26,100,000 * PVIF 6.5%, 20 yrs) = ($26,100,000 * 0.28380)

$7,407,180
Present value of semiannual interest payment ($1,827,000 *PVIFA 6.5%, 20 yrs) = ($1,827,000 * 11.01851) 20,130,818
Present value of the bonds $27,537,998
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