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.) Two present value tables are provided: Present Value of $1 at Compound Interest Due in n Periods and Present Value of Ordinary Annuity of $1 per Period. Use them as directed in the problem requirements. Present Value of $1 at Compound Interest Due in n Periods | Periods | 4.0% | 4.5% | 5% | 5.5% | 6% | 6.5% | 7% | 1 | 0.96154 | 0.95694 | 0.95238 | 0.94787 | 0.94340 | 0.93897 | 0.93458 | 2 | 0.92456 | 0.91573 | 0.90703 | 0.89845 | 0.89000 | 0.88166 | 0.87344 | 3 | 0.88900 | 0.87630 | 0.86384 | 0.85161 | 0.83962 | 0.82785 | 0.81630 | 4 | 0.85480 | 0.83856 | 0.82270 | 0.80722 | 0.79209 | 0.77732 | 0.76290 | 5 | 0.82193 | 0.80245 | 0.78353 | 0.76513 | 0.74726 | 0.72988 | 0.71299 | 6 | 0.79031 | 0.76790 | 0.74622 | 0.72525 | 0.70496 | 0.68533 | 0.66634 | 7 | 0.75992 | 0.73483 | 0.71068 | 0.68744 | 0.66506 | 0.64351 | 0.62275 | 8 | 0.73069 | 0.70319 | 0.67684 | 0.65160 | 0.62741 | 0.60423 | 0.58201 | 9 | 0.70259 | 0.67290 | 0.64461 | 0.61763 | 0.59190 | 0.56735 | 0.54393 | 10 | 0.67556 | 0.64393 | 0.61391 | 0.58543 | 0.55839 | 0.53273 | 0.50835 | 11 | 0.64958 | 0.61620 | 0.58468 | 0.55491 | 0.52679 | 0.50021 | 0.47509 | 12 | 0.62460 | 0.58966 | 0.55684 | 0.52598 | 0.49697 | 0.46968 | 0.44401 | 13 | 0.60057 | 0.56427 | 0.53032 | 0.49856 | 0.46884 | 0.44102 | 0.41496 | 14 | 0.57748 | 0.53997 | 0.50507 | 0.47257 | 0.44230 | 0.41410 | 0.38782 | 15 | 0.55526 | 0.51672 | 0.48102 | 0.44793 | 0.41727 | 0.38883 | 0.36245 | 16 | 0.53391 | 0.49447 | 0.45811 | 0.42458 | 0.39365 | 0.36510 | 0.33873 | 17 | 0.51337 | 0.47318 | 0.43630 | 0.40245 | 0.37136 | 0.34281 | 0.31657 | 18 | 0.49363 | 0.45280 | 0.41552 | 0.38147 | 0.35034 | 0.32189 | 0.29586 | 19 | 0.47464 | 0.43330 | 0.39573 | 0.36158 | 0.33051 | 0.30224 | 0.27651 | 20 | 0.45639 | 0.41464 | 0.37689 | 0.34273 | 0.31180 | 0.28380 | 0.25842 | 21 | 0.43883 | 0.39679 | 0.35894 | 0.32486 | 0.29416 | 0.26648 | 0.24151 | 22 | 0.42196 | 0.37970 | 0.34185 | 0.30793 | 0.27751 | 0.25021 | 0.22571 | 23 | 0.40573 | 0.36335 | 0.32557 | 0.29187 | 0.26180 | 0.23494 | 0.21095 | 24 | 0.39012 | 0.34770 | 0.31007 | 0.27666 | 0.24698 | 0.22060 | 0.19715 | 25 | 0.37512 | 0.33273 | 0.29530 | 0.26223 | 0.23300 | 0.20714 | 0.18425 | 26 | 0.36069 | 0.31840 | 0.28124 | 0.24856 | 0.21981 | 0.19450 | 0.17220 | 27 | 0.34682 | 0.30469 | 0.26785 | 0.23560 | 0.20737 | 0.18263 | 0.16093 | 28 | 0.33348 | 0.29157 | 0.25509 | 0.22332 | 0.19563 | 0.17148 | 0.15040 | 29 | 0.32065 | 0.27902 | 0.24295 | 0.21168 | 0.18456 | 0.16101 | 0.14056 | 30 | 0.30832 | 0.26700 | 0.23138 | 0.20064 | 0.17411 | 0.15119 | 0.13137 | 31 | 0.29646 | 0.25550 | 0.22036 | 0.19018 | 0.16425 | 0.14196 | 0.12277 | 32 | 0.28506 | 0.24450 | 0.20987 | 0.18027 | 0.15496 | 0.13329 | 0.11474 | 33 | 0.27409 | 0.23397 | 0.19987 | 0.17087 | 0.14619 | 0.12516 | 0.10723 | 34 | 0.26355 | 0.22390 | 0.19035 | 0.16196 | 0.13791 | 0.11752 | 0.10022 | 35 | 0.25342 | 0.21425 | 0.18129 | 0.15352 | 0.13011 | 0.11035 | 0.09366 | 40 | 0.20829 | 0.17193 | 0.14205 | 0.11746 | 0.09722 | 0.08054 | 0.06678 | 45 | 0.17120 | 0.13796 | 0.11130 | 0.08988 | 0.07265 | 0.05879 | 0.04761 | 50 | 0.14071 | 0.11071 | 0.08720 | 0.06877 | 0.05429 | 0.04291 | 0.03395 | Present Value of Ordinary Annuity of $1 per Period | Periods | 4.0% | 4.5% | 5% | 5.5% | 6% | 6.5% | 7% | 1 | 0.96154 | 0.95694 | 0.95238 | 0.94787 | 0.94340 | 0.93897 | 0.93458 | 2 | 1.88609 | 1.87267 | 1.85941 | 1.84632 | 1.83339 | 1.82063 | 1.80802 | 3 | 2.77509 | 2.74896 | 2.72325 | 2.69793 | 2.67301 | 2.64848 | 2.62432 | 4 | 3.62990 | 3.58753 | 3.54595 | 3.50515 | 3.46511 | 3.42580 | 3.38721 | 5 | 4.45182 | 4.38998 | 4.32948 | 4.27028 | 4.21236 | 4.15568 | 4.10020 | 6 | 5.24214 | 5.15787 | 5.07569 | 4.99553 | 4.91732 | 4.84101 | 4.76654 | 7 | 6.00205 | 5.89270 | 5.78637 | 5.68297 | 5.58238 | 5.48452 | 5.38929 | 8 | 6.73274 | 6.59589 | 6.46321 | 6.33457 | 6.20979 | 6.08875 | 5.97130 | 9 | 7.43533 | 7.26879 | 7.10782 | 6.95220 | 6.80169 | 6.65610 | 6.51523 | 10 | 8.11090 | 7.91272 | 7.72173 | 7.53763 | 7.36009 | 7.18883 | 7.02358 | 11 | 8.76048 | 8.52892 | 8.30641 | 8.09254 | 7.88687 | 7.68904 | 7.49867 | 12 | 9.38507 | 9.11858 | 8.86325 | 8.61852 | 8.38384 | 8.15873 | 7.94269 | 13 | 9.98565 | 9.68285 | 9.39357 | 9.11708 | 8.85268 | 8.59974 | 8.35765 | 14 | 10.56312 | 10.22283 | 9.89864 | 9.58965 | 9.29498 | 9.01384 | 8.74547 | 15 | 11.11839 | 10.73955 | 10.37966 | 10.03758 | 9.71225 | 9.40267 | 9.10791 | 16 | 11.65230 | 11.23402 | 10.83777 | 10.46216 | 10.10590 | 9.76776 | 9.44665 | 17 | 12.16567 | 11.70719 | 11.27407 | 10.86461 | 10.47726 | 10.11058 | 9.76322 | 18 | 12.65930 | 12.15999 | 11.68959 | 11.24607 | 10.82760 | 10.43247 | 10.05909 | 19 | 13.13394 | 12.59329 | 12.08532 | 11.60765 | 11.15812 | 10.73471 | 10.33560 | 20 | 13.59033 | 13.00794 | 12.46221 | 11.95038 | 11.46992 | 11.01851 | 10.59401 | 21 | 14.02916 | 13.40472 | 12.82115 | 12.27524 | 11.76408 | 11.28498 | 10.83553 | 22 | 14.45112 | 13.78442 | 13.16300 | 12.58317 | 12.04158 | 11.53520 | 11.06124 | 23 | 14.85684 | 14.14777 | 13.48857 | 12.87504 | 12.30338 | 11.77014 | 11.27219 | 24 | 15.24696 | 14.49548 | 13.79864 | 13.15170 | 12.55036 | 11.99074 | 11.46933 | 25 | 15.62208 | 14.82821 | 14.09394 | 13.41393 | 12.78336 | 12.19788 | 11.65358 | 26 | 15.98277 | 15.14661 | 14.37519 | 13.66250 | 13.00317 | 12.39237 | 11.82578 | 27 | 16.32959 | 15.45130 | 14.64303 | 13.89810 | 13.21053 | 12.57500 | 11.98671 | 28 | 16.66306 | 15.74287 | 14.89813 | 14.12142 | 13.40616 | 12.74648 | 12.13711 | 29 | 16.98371 | 16.02189 | 15.14107 | 14.33310 | 13.59072 | 12.90749 | 12.27767 | 30 | 17.29203 | 16.28889 | 15.37245 | 14.53375 | 13.76483 | 13.05868 | 12.40904 | 31 | 17.58849 | 16.54439 | 15.59281 | 14.72393 | 13.92909 | 13.20063 | 12.53181 | 32 | 17.87355 | 16.78889 | 15.80268 | 14.90420 | 14.08404 | 13.33393 | 12.64656 | 33 | 18.14765 | 17.02286 | 16.00255 | 15.07507 | 14.23023 | 13.45909 | 12.75379 | 34 | 18.41120 | 17.24676 | 16.19290 | 15.23703 | 14.36814 | 13.57661 | 12.85401 | 35 | 18.66461 | 17.46101 | 16.37419 | 15.39055 | 14.49825 | 13.68696 | 12.94767 | 40 | 19.79277 | 18.40158 | 17.15909 | 16.04612 | 15.04630 | 14.14553 | 13.33171 | 45 | 20.72004 | 19.15635 | 17.77407 | 16.54773 | 15.45583 | 14.48023 | 13.60552 | 50 | 21.48218 | 19.76201 | 18.25593 | 16.93152 | 15.76186 | 14.72452 | 13.80075 | | *Refer to the Chart of Accounts for exact wording of account titles. | CHART OF ACCOUNTS | Campbell Inc. | General Ledger | | ASSETS | 110 | Cash | 111 | Petty Cash | 121 | Accounts Receivable | 122 | Allowance for Doubtful Accounts | 126 | Interest Receivable | 127 | Notes Receivable | 131 | Merchandise Inventory | 141 | Office Supplies | 142 | Store Supplies | 151 | Prepaid Insurance | 191 | Land | 192 | Store Equipment | 193 | Accumulated Depreciation-Store Equipment | 194 | Office Equipment | 195 | Accumulated Depreciation-Office Equipment | | LIABILITIES | 210 | Accounts Payable | 221 | Salaries Payable | 231 | Sales Tax Payable | 232 | Interest Payable | 241 | Notes Payable | 251 | Bonds Payable | 252 | Discount on Bonds Payable | 253 | Premium on Bonds Payable | | EQUITY | 311 | Common Stock | 312 | Paid-In Capital in Excess of Par-Common Stock | 315 | Treasury Stock | 321 | Preferred Stock | 322 | Paid-In Capital in Excess of Par-Preferred Stock | 331 | Paid-In Capital from Sale of Treasury Stock | 340 | Retained Earnings | 351 | Cash Dividends | 352 | Stock Dividends | 390 | Income Summary 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? Yes No 5. Compute the price of $26,625,925 received for the bonds by using the present value tables. (Round to the nearest dollar.) | | Present value of the face amount | | Present value of the semiannual interest payments | | Price received for the bonds | | | | | REVENUE | 410 | Sales | 610 | Interest Revenue | 611 | Gain on Redemption of Bonds | | EXPENSES | 510 | Cost of Merchandise Sold | 515 | Credit Card Expense | 516 | Cash Short and Over | 521 | Sales Salaries Expense | 522 | Office Salaries Expense | 531 | Advertising Expense | 532 | Delivery Expense | 533 | Repairs Expense | 534 | Selling Expenses | 535 | Rent Expense | 536 | Insurance Expense | 537 | Office Supplies Expense | 538 | Store Supplies Expense | 541 | Bad Debt Expense | 561 | Depreciation Expense-Store Equipment | 562 | Depreciation Expense-Office Equipment | 590 | Miscellaneous Expense | 710 | Interest Expense | 711 | Loss on Redemption of Bonds | | |