Question

Problem 10-1A Straight-Line: Amortization of bond discount LO P2 (Required 4)

A newconnect.mheducation.com M M San Anton BUSA-7-09-21614.20... MHE Reader Ch 10: Homework Student - MISAC https://prodssb.mtsac Problem 10-TA what Ch 10: Homework Submitted 19.6/20 Total points awarded Help Exit Problem 10-1A Straight-Line: Amortization of bond discount LO P2 Hillside issues $1,200,000 of 8%, 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 $1,036,935. 4.6/5 points awarded Scored 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 discount 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. eBook Complete this question by entering your answers in the tabs below. Ask Req 1 Req 2A to 2C Reg 3 Req 4 Reg 5 Print ........................................................ Prepare the first two years of a straight-line amortization table. References Carrying Value Semiannual Period-End 01/01/2019 06/30/2019 12/31/2019 06/30/2020 12/31/2020 Unamortized Discount $ 163,065 157,630 152,195 146,760 141,325 $ 1,036,935 1,042,370 1,047,805 1,053,240 1,058,675 < Reg 3 Req 5 >

Answer 1

Solution Par Value of Bonds Issue price of Bonds Discount on issue of Bonds ($1,200,000 - $1,036,935) Stated rate of interest Bond life Interest payment frequency Total no. of interest payment till maturity (15 Years x 2) $1,200,000 $1,036,935 $163,065 8% 15 Years Semi-Annually Semiannual interest payment = $1,200,000 x 8% x 6/12 = $48,000 Required 1.: Journal entry to record the bond issuance Date Jan. 1, 2019 Credit Account Titles and Explanation Cash Discount on Bonds Payable Bonds Payable (To record issuance of bonds) Debit $1,036,935 $163,065 $1,200,000 Required 2 2(a) Par (Maturity value) x Annual rate x Year = Semiannual cash interest payment $1,200,000 X 8% x 6/12 = $48,000 2(b) Par (Maturity value) - Bonds price = / Discount on Bonds Payable Semiannual = Straight-line periods discount amortization $1,200,000 - $1,036,935 = $163,065 / 30 = $5,435.50 2(c) Semiannual cash payment + Discount amortization = Bond interest expense $48,000 + $5,435.50 = $53,436.50 Required 3.: Total Bonds interest expense to be recognized over the bonds' life Total interest payment over the life of Bonds ($48,000 x 30) Add: Face value of Bonds to be repaid at the time of maturity Total payment during entire life of bonds Less: Issue price of Bonds Total Bonds interest expense to be recognized over the bonds' life $1,440,000 $1,200,000 $2,640,000 ($1,036,935) $1,603,065 Required 4.: Straight-line amortization table Semiannual Period end 1/1/2019 6/30/2019 12/31/2019 6/30/2020 12/31/2020 Unamortized Discount $163,065 $157,630 $157,05 $152,194 $146,759 $141,323 Carrying Value $1,036,935 $1,042,371 $1,047,806 $1,053,242 $1,058,677 Required 5.: Journal entry to record first two interest payment Credit Debit $53,346 Date Account Titles and Explanation June 30, 2019 Interest expense Discount on Bonds Payable Cash (To record first interest payment) $5,346 $48,000 Dec 31, 2019 $53,346 Interest expense Discount on Bonds Payable Cash (To record second interest payment) $5,346 $48,000