Compute the price of $42,309,236 received for the bonds by using the present val

Question

Compute the price of $42,309,236 received for the bonds by using the present value tables in Appendix A at the end of the text. Rodgers Corporation produces and sells football equipment. On July 1, 2014, Rodgen Corporation 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 or December 31 and June 30. The fiscal year of the company is the calendar year. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 2014. Journalize the entries to record the following: 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.) The interest payment on June 30, 2015, and the amortization of the bond premium using the straight-line method. (Round to the nearest dollar.) Determine the total interest expense for 2014. Will the bond proceeds always be greater than the face amount of the bonds the contract rate is greater than the market rate of interest?

Explanation / Answer

Rodgers Corporation Amt $ Details Face Value of Bond           65,000,000 Issue Price           73,100,469 Premium              8,100,469 Tenure years                            10 Premuim Amortization per half year                 405,023 Stated interest rate 12% Interest payable Half yearly              3,900,000                            1 Journal entry Date Account Title DR $ Cr $ Jul 1.2014. Cash           73,100,469 Bond Payable                    65,000,000 Premium on Bond                      8,100,469 2a. Dec 31.2014. Interest payable                        3,900,000 Premium on Bond                 405,023 Interest Expense              3,494,977 ( amortization of bond premium ) 2b. Jun30.2015. Interest payable                        3,900,000 Premium on Bond                 405,023 Interest Expense              3,494,977                            3 Total interest expense for Dec 2014. = $                  3,494,977                            4 Generally whenthe bond interest rate is more than market interest rate , it is sold at premium. However , there may be   exception if a bond has very low or junk credit rating, then   it may not sell at premuim though it may have higher rate of interest than market rate.

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