Question

Hillside issues $4,000,000 of 6%, 15-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $4,895,980.

Required:
1. Prepare the January 1 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 a straight-line amortization table.
5. Prepare the journal entries to record the first two interest payments.

Answer 1

1.

Date	General Journal	Debit ($)	Credit ($)
1st Jan 2019	Cash	48,95,980
	Premium on bonds payable		8,95,980
	Bonds payable		40,00,000
	(To record bonds issuance)

2a.

Semi-annual interest cash payment = Par value X annual rate X Years

                                                                                = 4,000,000 * 6% * 6/12 = $ 120,000

2b.

Premium on bonds payable = 4,895,980 – 4,000,000 = $ 895,980

Straight line discount amortization = 895,980/30 = $ 29,866

2c.

Bond interest expense = semiannual cash payment – premium amortization = 120,000 – 29,866 = $ 90134

3.

Amount repaid = 30 X 120,000 = $ 3,600,000

Par value at maturity = 4,000,000

Total repaid = 7,600,000

Amount borrowed = 4895,980

Total bond interest expense over life of bonds = 7600,000 – 4895,980 = 2,704,020

4.

Semiannual Period-End	Unamortized Premium	Carrying Value
1/1/2019	8,95,980	48,95,980
6/30/2019	8,66,114	48,66,114
12/31/2019	8,36,248	48,36,248
6/30/2018	8,06,382	48,06,382
12/31/2018	7,76,516	47,76,516

5.

Date	Particulars	Debit ($)	Credit ($)
June 30,2019	Interest expense	90134
	Premium on bonds payable	29866
	Cash		120000
	(To record interest payments)
Dec 31,2019	Interest expense	90134
	Premium on bonds payable	29866
	Cash		120000
	(To record interest payment)

kindly upvote