Rodgers Corporation produces and sells football equipment. On July 1, 2014, Rodgers Corporation issued

Rodgers Corporation produces and sells football equipment. On July 1, 2014, Rodgers 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 on December 31 and June 30. The fiscal year of the company is the calendar year.


Instructions
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, 2014, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.)

b. The interest payment on June 30, 2015, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.)

3. Determine the total interest expense for 2014.


Answer:

1. 2014
July 1 Cash 73,100,469
Premium on Bonds Payable 8,100,469
Bonds Payable 65,000,000

2. a. 2014
Dec. 31 Interest Expense* 3,655,023
Premium on Bonds Payable 244,977
Cash 3,900,000
*$73,100,469 × 5%
b. 2015
June 30 Interest Expense* 3,642,775
Premium on Bonds Payable 257,225
Cash 3,900,000

*($73,100,469 – $244,977) × 5%
3. $3,655,023