Bond Premium, Entries for Bonds Payable Transactions Maui Blends, Inc. produces
ID: 2497815 • 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 $2,700,000 of 7-year, 11% bonds at a market (effective) interest rate of 10%, receiving cash of $2,833,632. 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.
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.
Interest expense __?________ _$0.00________
Premium on bonds payable ____?_______ ___$0.00________
Cash __$0.00_____ _____?______
Interest expense ___?_____ __$0.00_____
Premium on bonds payable _____?____ __$0.00_______
Cash __$0.00_____ ___?______
3. Determine the total interest expense for 2014. Round to the nearest dollar.
$ ________
5. Compute the price of $2,833,632 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.
Interest expense __?________ _$0.00________
Premium on bonds payable ____?_______ ___$0.00________
Cash __$0.00_____ _____?______
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.)
Interest expense ___?_____ __$0.00_____
Premium on bonds payable _____?____ __$0.00_______
Cash __$0.00_____ ___?______
3. Determine the total interest expense for 2014. Round to the nearest dollar.
$ ________
5. Compute the price of $2,833,632 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.
Present value of the face amount $ Present value of the semi-annual interest payments $ Price received for the bonds $Explanation / Answer
1st July 2014 bonds face value 2,700,000 bonds Issue value 2,833,632 Bond premium 133,632 Number of periods 14 7years*2 straight line amortization 9,545 133632/14 Interest expense 148,500 148,500 Journal entries a) Date Accounts Debit Credit 31-Dec-14 Interest expense 138,955 Premium on bonds payable 9,545 cash 148,500 b) 30-Jun-15 Interest expense 138,955 Premium on bonds payable 9,545 cash 148,500 Total interest expense of 2014 is $ 138955 as shown in the above journal entry present value of facevalue 2,700,000 Semi annual interest 138,955 PF annuity factor 14 yrs 5% 9.8986 Present value of interest payment 1,375,464 Price received for the bond 2,833,632