Tristate Recreation Park (TRP) finances operations with both bonds and stock. Su

Question

Tristate Recreation Park (TRP) finances operations with both bonds and stock. Suppose TRP issued $200,000 of 10-year, 6% bonds payable under various market conditions. Match each market interest rate with the appropriate bond price, as follows. The three possible bond prices are $216,000; $200,000; and $186,000. TRP pays annual interest each December 31. After determining the respective bond prices, make the following journal entries for the bond premium situation (explanations are not required): Dec. 31, 2008 Issuance of the bonds at a premium. Dec. 31, 2009 Payment of interest and amortization of bond premium by the straight-line method. Dec. 31, 2018 Payment of interest and amortization of bond premium by the straight-line method. Dec. 31, 2018 Final payment of the bonds payable. How much total interest expense will TRP have during the 10-year life of these bonds?

Explanation / Answer

Market Interest Rate Bond Price 7% 186000 6% 200000 5% 216000 Dec 31, 2008 Cash 216000 Bonds 6% 200000 Premium on bonds 16000 Dec 31, 2009 Interest Expense 10400 Premium on bonds 1600 Cash 12000 Dec 31, 2018 Interest Expense 10400 Premium on bonds 1600 Cash 12000 Dec 31, 2018 Bonds 6% 200000 Cash 200000 Interset for 12 years = 10400*10 = 104,000 Premium = 216,000-200,000 = 16,000 amortization = 16000/10 = 1600

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