Maui Blends, Inc. produces and sells organically grown coffee. On July 1, 2014,
ID: 2487534 • Letter: M
Question
Maui Blends, Inc. produces and sells organically grown coffee. On July 1, 2014, Maui Blends, Inc. issued $7,400,000 of 7-year, 12% bonds at a market (effective) interest rate of 11%, receiving cash of $7,754,816. 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.
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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, Learning Objective 3.
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.)
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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, Learning Objective 3.
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.)
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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, Learning Objective 3.
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?
SelectYesNoCorrect 2 of Item 4
5. Compute the price of $7,754,816 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
1- cash debit 7754816
credit bond payable 7400000
credit premium on issuance of bonds 354816
2-interest expense debit 418656
premium on bonds payable debit 25344
credit cash 444000
3- interest expense debit 418656
premium on bonds payable debit 25344
credit cash 444000
4- total interest expense for the year 2014 = 418656
(b) yes bonds proceeds will always be greater than the face value when contract rate is greater than the market rate
semiannual period interest present value @5.5% present value of cash flow 1 444000 0.947867 420853.08 2 444000 0.898452 398912.87 3 444000 0.851614 378116.47 4 444000 0.807217 358404.23 5 444000 0.765134 339719.65 6 444000 0.725246 322009.15 7 444000 0.687437 305221.94 8 444000 0.651599 289309.9 9 444000 0.617629 274227.39 10 444000 0.585431 259931.18 11 444000 0.554911 246380.26 12 444000 0.525982 233535.79 13 444000 0.498561 221360.94 14 444000 0.472569 209820.8 7400000 0.472569 3497013.3 value of bond 7754817