Bond Premium, Entries for Bonds Payable Transactions, Interest Method of Amortiz
ID: 2619642 • Letter: B
Question
Bond Premium, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Premium Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $73,100,469. 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. Year 1 July 1 Cash 73,100.469 Premium on Bonds Payable olvi 8.100.469 Bonds Payable oV65,000,000 Feedbadk Check My Work Bonds Payable is always recorded at face value. Any diference in issue price is reflected in a premium or discount account. 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 interest method. (Round to the nearest dollar.) Year 1 Dec. 31 Interest Expense 0 Premium on Bonds Payable 0 Cash 3,900,000 b. The interest payment on June 30, Year 2, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) Year 2 June 30 Interest Expense 0Explanation / Answer
1 Year 1 July 1 Cash $ 73,100,469 Premium on Bonds Payable $ 8,100,469 Bonds Payable $ 65,000,000 2 Year 1 Dec. 31 Interest Expense $ 3,655,023 (73100469 x 10% /2) Premium on Bonds Payable $ 244,977 Difference Cash $ 3,900,000 (65000000 x 12% /2) Year 2 June 30 Interest Expense $ 3,642,775 (73100469-244977) x 10% /2) Premium on Bonds Payable $ 257,225 Cash $ 3,900,000 3 Total interest expense in year 1 is $3,655,023