Bond Premium, Entries for Bonds Payable Transactions Hau Blends Inc. produces an
ID: 2582075 • Letter: B
Question
Bond Premium, Entries for Bonds Payable Transactions Hau Blends Inc. produces and sens organi aly grown coffee. On July 1. 2014, Ma Required 3,2014, Mau Blerds, Inc. issued S2,900000 of prear, 12% bods at Bends lewed $2.900,000 of pmati2% bands aternet (eMedvelte est manet te of 10% rece ng ator, iaan Herer en the be de le on December 31 and une 30. The fiscal year of the company is the calendar year 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 bands on July 1, 2014 238999 on Bonds 38993 2 Journalize the entries to record the following a The first semiannual i traight-ine method(Round to the nearest dollar) nterest payment an December 31, 2014, and the amertization of the bond premium, using the The interest payment on June 30, 2015, and the amortination of the bond premium, usling the straight-line method. (Round to the nearest dellar)
Explanation / Answer
1. Cash........................................................................ 3,238,999
Premium on Bonds Payable................................................. 338,999
Bonds Payable ....................................................................... 2,900,000
2. a. Interest Expense ......................................................... 155,167
Premium on Bonds Payable ($338,999 ÷ 18)……………..... 18,833
Cash………………….............................................................. 174,000
b. Interest Expense ........................................................ 155,167
Premium on Bonds Payable........................................ 18,833
Cash…………................................................................. 174,000
3. $155,167
4. Yes. Investors will be willing to pay more than the face amount of the bonds
when the interest payments they will receive from the bonds exceed the
amount of interest that they could receive from investing in other bonds.
5. Present value of $1 for 18 (semiannual)
periods at 5% (semiannual rate).............................. 0.415521
Face amount ............................................................. × $2,900,000 $ 1,205,011
Present value of annuity of $1 for 18 periods at 5%... 11.689587
Semiannual interest payment.................................. × $174,000 2,033,988
Proceeds of bond issue ............................................... $3,238,999