Present Value Tables Chart of Accounts Journal Final Questio

Present Value Tables Chart of Accounts Journal Final Questions Instructions Sa enn Inc. produces and sells outdoor equipment on July 1, 2016, Sa erin Inc. issued $87 000,000 of 10-year, 11% bonds at a maket (emed e) interest rate of 10%, receiving cash of $92 421,105. Interest on the bonds is payable semiannually on December 31 and June 30. The t so a 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, 2016* 2. Journalize the entries to record the following a. The first semiannual interest payment on December 31, 2016, and the amortization of the bond premium, using the straight-line method (Round to the nearest dollar,) b. The interest payment on June 30, 2017, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar) 3. Determine the total interest expense for 2016 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 $92,421,105 received for the bonds by using the tables shown in Present Value Tables. (Round to the nearest dollar) Be sure to include the year in the date for the entries. Refer to the Chart of Accounts for exact wording of account tities

Solution

1) Cash 92421105 Premium on bonds payable 5421105 Bonds payable 87000000 2) 31 Dec, 2016 Interest expense 4513945 Premium on bonds payable (5421102/20) 271055 Cash (87000000*11%*1/2) 4785000 30 June, 2017 Interest expense 4513945 Premium on bonds payable (5421102/20) 271055 Cash (87000000*11%*1/2) 4785000 3) Total interest expense for 2016 4513945 4) Yes. 5) PV of the face amount (87000000*0.37689) 32789430 PV of the semi-annual interest payments (4785000*12.46221) 59631675 Price received for the bonds 92421105