Maui Blends, Inc., produces and sells organically grown coffee. On July 1, 2010, Maui Blends, Inc. issued

Maui Blends, Inc., produces and sells organically grown coffee. On July 1, 2010, Maui Blends, Inc. issued $3,000,000 of 15-year, 12% bonds at an effective interest rate of 10%, receiving cash of $3,461,181. Interest on the bonds is payable semi annually 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 scale of the bonds.

2. Journalize the entries to record the following:
 

a. First semi annual interest payment on December 31, 2010, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar)

b. The interest payment on June 30, 2011, and the amortization of the bond premium, using the straight-line method.(Round to the nearest dollar).

3. Determine the total interest expense for 2010.

4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?

5. (Appendix 1) Compute the price of $3,461,181 received for the bonds by using the tables of present value in Appendix A at end of text.(Round to the nearest dollar).

File name: Maui-Blends-Inc.xls File type: application/vnd.ms-excel Price: $9