Campbell Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell
ID: 2579184 • Letter: C
Question
Campbell Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell issued $25,000,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $26,625,925. 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 on July 1, Year 1.* 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 straight-line method. (Round to the nearest dollar.) b. The interest payment on June 30, Year 2, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.) 3. Determine the total interest expense for Year 1. 4. Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest? 5. Compute the price of $26,625,925 received for the bonds by using the present value tables. (Round to the nearest dollar.) *Refer to the Chart of Accounts for exact wording of account titles.Explanation / Answer
CAMPBELL INC: 1) 1-Jul Cash 26625925 Premium on bonds payable 1625925 Bonds payable 25000000 2-a) 31-Dec Interest expense 1168704 Premium on bonds payable (1625925/20) 81296 Cash (25000000*10%*1/2) 1250000 2-b) 30-Jun Interest expense 1168704 Premium on bonds payable (1625925/20) 81296 Cash (25000000*10%*1/2) 1250000 3) Total interest expense for Year 1 = 1168704 4) Yes. 5) PV of the maturity value = 25000000*PVIF(4.5,20)=25000000*0.41464 = 10366000 PV of the half yearly interest = 25000000*5%*PVIFA(4.5,20) = 1250000*13.00794 = 16259925 Price of the bonds 26625925
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