Question

Ellis Company issues 6.5%, five-year bonds dated January 1, 2019, with a $250,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $255,333. The annual market rate is 6% on the issue date.

Required: 1. Complete the below table to calculate the total bond interest expense over the bonds' life. 2. Prepare a straight-line amortization table for the bonds' life. 3. Prepare the journal entries to record the first two interest payments.

Answer 1

1)

Ten payment of $ 8,125 *	81,250
Par value at maturity	250,000
Total repaid	331,250
Less amount borrowed	(255,333)
Total bond interest expense	$ 75,917
*2,50,000 * 0.065 * 1/2 = $8125

2) straingtline amortization table ($5,333/10 = 533*)

Semi annual interest period end	Unamortized premium	Carrying value
1/01/2019	$5,333	$255,333
6/30/2019	4800	254,800
12/31/2019	4267	254,267
6/30/2020	3734	253,734
12/31/2020	3201	253 201
6/30/2021	2668	252,668
12/31/2021	2135	252,135
6/30/2022	1602	251,602
12/31/2022	1069	261,069
6/30/2023	533**	250,533
12/31/2023	0	250,000

3) 2019

June 30	Bond interest expense	7,592
	Premium on bonds payable	533
	Cash		8,125
	To record six month interest and premium amortization

2019
Dec 31	Bond interest expense	7,592
	Premium on bonds payable	533
	Cash		8,125
	To record six month interest and premium amortization