# Maui Blends Inc. produces and sells organically grown coffee. On July 1 2012 Mau

Friday July 29, 2022

Maui Blends Inc. produces and sells organically grown coffee. On July 1 2012 Maui Blends Inc. issued \$7800000 of 10-year 13% bonds at a market (effective) interest rate of 11% receiving cash of \$8732131. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.Required:For all journal entries with a compound transaction if an amount box does not require an entry leave it blank.1.Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
Hide Feedback Correct Additional Feedback 1. Record the cash received (debit) the liability (credit) and the premium on the bonds payable (credit) which is the difference between the two amounts. 2.Journalize the entries to record the following:a. The first semiannual interest payment on December 31 2012 and the amortization of the bond premium using the straight-line method. (Round to the nearest dollar.)
Hide Feedback Partially Correct Additional Feedback 2a. Divide the premium by the number of semiannual periods. The cash paid (credit) minus the amortized premium (debit) equals the interest expense (debit). b. The interest payment on June 30 2013 and the amortization of the bond premium using the straight-line method. (Round to the nearest dollar.)
Hide Feedback Partially Correct Additional Feedback 2b. Divide the premium by the number of semiannual periods. The cash paid (credit) minus the amortized premium (debit) equals the interest expense (debit).3.Determine the total interest expense for 2012.\$4.Will the bond proceeds always be greater than the face amount of the bonds when thecontract rateis greater than themarket rate of interest? Select Yes No Correct 2 of Item 45.Compute the price of \$8732131 received for the bonds by using the tables of present value inAppendix A. (Round to the nearest dollar.) Your total may vary slightly from the price given due to rounding differences. Hide Feedback Partially Correct Additional Feedback 3. Divide the premium by the number of semiannual periods. The cash paid (credit) minus the amortized premium (debit) equals the interest expense (debit).4. Review the concept of the market rate and the contract rate. Recall that if the market rate of interest is less than the contract rate of interest the bonds will sell for more than their face amount because investors are willing to pay more for bonds that pay a higher contract rate of interest than the rate they could earn on similar bonds (market rate).5a. Using the table for present value of \$1 locate the market interest rate and time period; then multiply the factor by the bond face amount.5b. Using the table for present value of annuity of \$1 locate the market interest rate and the time period; then multiply the factor by the semiannual interest payment.

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