Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1. Campbell

Question

Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1. Campbell issued $14,000,000 of 10-year, 11% bonds at a market (effective) interest rate of 9%, receiving cash of $15,821,074. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Required:

1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds.*

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.) 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.)

3. Determine the total interest expense for Year 1. *Refer to the Chart of Accounts for exact wording of account titles.

Explanation / Answer

AMORTIZATION TABLE DATE INTEREST INTEREST PREMIUM UNAMORTIZED CARRYING VALUE CASH PAID EXPENSE AMORTIZED PREMIUM OF BONDS DEC 31 YEAR1 770,000 711948 58,052 1763022 15763022 JUNE30 YEAR2 770,000 709336 60,664 1702358 15702358 Journal Entries: Date Accounts title and explanations Debit $ Credit $ JULY1 Year-1 Cash Account Dr. 15,821,074       Bonds Payable 14,000,000       Premium on Bonds payable 1,821,074 DEC31 Year-1 Interest expense Dr. 711948 Premium on Bonds payable Dr. 58052      Cash Account 770000 JUNE 30 Year-2 Interest expense Dr. 709336 Premium on Bonds payable Dr. 60664      Cash Account 770000 Total Expense for year-1: $711,948

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