Bond Premium , Entries for Bonds Payable Transactions Maui Blends, Inc. produces
ID: 2424828 • Letter: B
Question
Bond Premium, Entries for Bonds Payable Transactions
Maui Blends, Inc. produces and sells organically grown coffee. On July 1, 2014, Maui Blends, Inc. issued $4,100,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $4,610,951. 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, 2014.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2014, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2015, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2014. 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?
5. Compute the price of $4,610,951 received for the bonds by using Table 1 and Table 2. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences.
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1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 2014.
Explanation / Answer
Journale entries
3) total interest expense for 2014 = $246,000
4)Yes
5) n = 5% , i = 20 years
date Description Debit Credit July 1 Cash $4,610,951 To Bonds payable $4,100,000 To Premium on bonds 510,951 Dec 31 Interest expense $220,452 Premium on bonds 22,548 To Cash $246,000 June 30 interest expense $220,452 premium on bonds 25,548 To cAsh $246,000