Question

Campbell Inc. produces and sells outdoor equipment. On July 1, 20Y1, Campbell issued $30,000,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $31,951,110. 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 on July 1, 20Y1.* 2. Journalize the entries to record the following:* a. The first semiannual interest payment on December 31, 20Y1, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.) b. The interest payment on June 30, 20Y2, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.) 3. Determine the total interest expense for 20Y1.

Answer 1

ANSWER

Date Accounting titles & Explanations Debit Credit 1) 1-Jul Cash Premium on bonds payable Bonds payable 31951110 1951110 30000000 2) 31-Dec Interest expense Premium on bonds payable Cash 1402444.5 97555.5 (1951110/20) (30,000,000*12%*1/2) 1500000 30-Jun interest expense Premium on bonds payable 1402444.5 97555.5 Cash 1500000 total interest expense for year 1 (1402444.5*2)= 2804889

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