PR.11-02.ALGo

Bond Premium, Entries for Bonds Payable Transactions

Campbell Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell issued $31,800,000 of 10-year, 12% bonds at a market (effective) interest rate of 11%, receiving cash of $33,700,139. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

**Required:**

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 | |||

Premium on Bonds Payable | |||

Bonds Payable |

Feedback

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.

Learning Objective 2.

**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 straight-line method. (Round to the nearest dollar.)

Interest Expense | |||

Premium on Bonds Payable | |||

Cash |

Feedback

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.

Learning Objective 2.

b. The interest payment on June 30, Year 2, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)

Interest Expense | |||

Premium on Bonds Payable | |||

Cash |

Feedback

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.

Learning Objective 2.

**3.** Determine the total interest expense for
Year 1. Round to the nearest dollar.

$

**4.** Will the bond proceeds always be greater
than the face amount of the bonds when the contract rate is greater
than the market rate of interest?

Yes

**5.** Compute the price of $33,700,139 received
for the bonds by using Exhibit 5 and Exhibit 7. (Round to the
nearest dollar.) Your total may vary slightly from the price given
due to rounding differences.

Present value of the face amount | $ |

Present value of the semi-annual interest payments | $ |

Price received for the bonds | $ |

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