Question

Hillside issues $2,800,000 of 8%, 15-year bonds dated January 1, 2018, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,427,190.

Required:

1. Prepare the January 1, 2018, journal entry to record the bonds’ issuance.

2(a) For each semiannual period, complete the table below to calculate the cash payment.

2(b) For each semiannual period, complete the table below to calculate the straight-line premium amortization.

2(c) For each semiannual period, complete the table below to calculate the bond interest expense.

3. Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.

4. Prepare the first two years of an amortization table using the straight-line method

5. Prepare the journal entries to record the first two interest payments.

Record the issue of bonds with a par value of $2,800,000 cash on January 1, 2018 at an issue price of $3,427,190.

	Date General Journal Debit Credit Jan 01, 2018

For each semiannual period, complete the table below to calculate the cash payment, straight-line premium amortization and bond interest expense. (Round "Unamortized Premium" to whole dollar and use the rounded value for part 4 & 5.)

	Par (maturity) value Annual Rate Year Semiannual cash interest payment = Bond price Par (maturity value) Premium on Bonds Payable Semiannual periods Straight-line premium amortization = = Semiannual cash payment Premium amortization Bond interest expense =

Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.

	Total bond interest expense over life of bonds: Amount repaid: payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense

Prepare the first two years of an amortization table using the straight-line method

	Semiannual Period-End Unamortized Premium Carrying Value 01/01/2018 06/30/2018 12/31/2018 06/30/2019 12/31/2019

Record the first interest payment on June 30, 2018.

	Date General Journal Debit Credit Jun 30, 2018

Record the second interest payment on December 31, 2018.

	Date General Journal Debit Credit Dec 31, 2018

Answer 1

Answer-1:

Date General Journal Account Name Cash Premium on Bonds Payable Bonds Payable Debit ($) Credit ($) 3,427,190 627,190 2,800,000 Jan.01, 2018

Answer-2(a)

Annual rate Year Par (maturity) value 2,800,000 Semiannual cash interest payment 112,000 8% 1/2

Answer-2(b)

Bond price Semiannul period Par (maturity) value 2,800,000 Premium on bonds payable $ 627,190 Straight-line premium amortization $ 20,906 $ 3,427,190 30

Answer-2(c)

Semiannual cash payment 112000 Premium amortization 20906 = Bond interest expense 91094

Answer-3:

Total bond interest expense over life of bonds Amount repaid: Payment of cash interest $ 3,360,000 Par value at maturity $ 2,800,000 Total repaid 6,160,000 Less: Amount borrowed $ 3,427,190 Total bond interest expense $ 2,732,810 $

Answer-4:

Carrying value Semiannual period end 1/1/2018 6/30/2018 12/31/2018 6/30/2019 12/31/2019 Unamortized Premium 627190 606284 585377 564471 543565 3427190 3406284 3385377 3364471 3343565