Solution 1:
Journal Entries - Campbell Inc. | |||
Date | Particulars | Debit | Credit |
1-Jul-20Y1 | Cash Dr | $94,580,761.00 | |
To Bond Payable | $84,100,000.00 | ||
To Premium on Bond Payable | $10,480,761.00 | ||
(To record issue of bonds) |
Solution 2:
Journal Entries - Campbell Inc. | |||
Event | Particulars | Debit | Credit |
31-Dec-20Y1 | Interest expense Dr | $4,521,962.00 | |
Preimum on bond payable Dr ($10,480,761 / 20) | $524,038.00 | ||
To Cash ($84,100,000*12%*6/12) | $5,046,000.00 | ||
(To record semiannual interest payment and Premium amortization) | |||
30-Jun-20Y2 | Interest expense Dr | $4,521,962.00 | |
Preimum on bond payable Dr ($10,480,761 / 20) | $524,038.00 | ||
To Cash ($84,100,000*12%*6/12) | $5,046,000.00 | ||
(To record semiannual interest payment and Premium amortization) |
Solution 3:
Total interest expense for 20Y1 = $4,521,962
Solution 4:
Yes, bonds proceed always greater than face amount when contract rate is greater than market rate of interest.
Solution 5:
Computation of bond price | |||
Table values are based on: | |||
n= | 20 | ||
i= | 5.00% | ||
Cash flow | Table Value | Amount | Present Value |
Present value of face amount | 0.37689 | $84,100,000.00 | $31,696,449 |
Present value of semiannual interest | 12.46221 | $5,046,000.00 | $62,884,312 |
Price received for the bonds | $94,580,761 |
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