On July 1,2012, Maui Blends, Inc. issued $7,700,000 of 7-year, 11% bonds at a ma

Question

On July 1,2012, Maui Blends, Inc. issued $7,700,000 of 7-year, 11% bonds at a market (effective) interest rate of 10%, receiving cash of $8,081,096. Interest on the bonds is payable semiannually on Dec. 31 & June 30.
(a) Journalize the entries to record the following: The first semiannual interest payment on Dec. 31, 2012 & the amortization of the bond premium, using the STRAIGHT LINE METHOD.
(B) The interest payment on June 30,2013, & the amortization of the bond premium, using the STRAIGHT LINE METHOD.
(c) Determine the TOTAL INTEREST EXPENSE for 2012
(d) Compute the price of $8,081,096 received for the bonds by using the tables of present value in Appendix A.
* Present value of the face amount
Present value of the semi annual interest payments
Price received for the bonds

Explanation / Answer

Total interest paid = (7,700,000*.11*7) - (8,081,096 – 7,700,000) = 5,547,904 Interest each semiannual period = 5,547,904/14=396278.86 a. Debit: Bond Interest Expense 396,278.86 Debit: Premium on Bonds Payable 27,221.14 Credit: Cash 423,500 b. Debit: Bond Interest Expense 396,278.86 Debit: Premium on Bonds Payable 27,221.14 Credit: Cash 423,500 c. Total interest expense for 2012 = 396,278.86 d. PV of interest payments = 423,500*9.898641 = 4,192,074.46 PV of principle = 7,700,000*0.505068 = 3,889,023.60 4,192.074.46 + 3,889,023.60 = 8,081,098.06

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.