Saverin, Inc. produces and sells outdoor equipment. On July 1, 2016, Saverin, In
ID: 2416731 • Letter: S
Question
Saverin, Inc. produces and sells outdoor equipment. On July 1, 2016, Saverin, Inc. issued $62,500,000 of 10-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $66,747,178. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Required:
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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, 2016, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) b. The interest payment on June 30, 2017, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.) 3. Determine the total interest expense for 2016. *Be sure to include the year in the date for the entries. Refer to the Chart of Accounts for exact wording of account titles.Explanation / Answer
Saverin Inc Details Amt $ Bond Par value 62,500,000 Bond Issue Price 66,747,178 Bond Premium 4,247,178 Semi annual interest payable @4.5% 2,812,500 Effective interest rate semi annual = 4% Bond Premium Amortization Period Interest payable Interest @ Effective rate on carrying value Premium Amortization Unamortized premium Bond Payable Carrying Value Jul 1.2016. - - - 4,247,178.00 62,500,000 66,747,178.00 Dec 31.2016. 2,812,500 2,669,887.12 142,612.88 4,104,565.12 62,500,000 66,604,565.12 Jun 30.2017. 2,812,500 2,664,182.60 148,317.40 3,956,247.72 62,500,000 66,456,247.72 - Journal Entries Sr No Date Account Title Dr $ Cr $ 1.00 Jul 1.2016 Cash 66,747,178.00 Bond Payable 62,500,000.00 Premium on Bond 4,247,178.00 ( issue of bons at premium) 2.00 a Dec 31.2016. Interest Payable 2,812,500.00 Interest Expense 2,669,887.12 Premium on Bond 142,612.88 Cash 2,812,500.00 Interest Payable 2,812,500.00 ( Interest payment and bond premium amortization entry) b Jun 30.2017. Interest Payable 2,812,500.00 Interest Expense 2,664,182.60 Premium on Bond 148,317.40 Cash 2,812,500.00 Interest Payable 2,812,500.00 ( Interest payment and bond premium amortization entry) 3.00 Total Interst expense for 2016= $ 2,669,887.12
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