Question

Hillside issues $2,400,000 of 9%, 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 $2,073,868.

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 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 an amortization table using the straight-line method.

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

Complete this question by entering your answers in the tabs below.

• Req 1
• Req 2A to 2C
• Req 3
• Req 4
• Req 5

For each semiannual period, complete the table below to calculate the cash payment, straight-line discount amortization and bond interest expense.

	Par (maturity) value Annual Rate Year Semiannual cash interest payment $2,400,000 x 9% x = Par (maturity) value Bonds price Discount on Bonds Payable Semiannual periods Straight-line discount amortization $2,400,000 - $2,073,868 = $326,132 = Semiannual cash payment Discount amortization Bond interest expense $108,000 + $10,871 = $118,871

Answer 1

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Requirement 1
Jan 1	Cash	$     2,073,868
	Discount on Bond Payable	$         326,132
	Bond Payable		$   2,400,000
Requirement 2
2a	$                                                  2,400,000	x	9%	x	6/12	=	$   108,000
2b	$                                                  2,400,000	-	$   2,073,868	=	$     326,132	/	30	=	$     10,871
2c	$                                                      108,000	+	$         10,871	=	$     118,871
Requirement 3
30 Payment of	$                                                      108,000	$     3,240,000
Par value		$     2,400,000
Total Repaid		$     5,640,000
Less: Amount borrowed		$   (2,073,868)
Total bond int expense		$     3,566,132
Requirement 4
1/1/2019	$                                                      326,132	$     2,073,868
6/30/2019	$                                                      315,261	$     2,084,739
12/31/2019	$                                                      304,390	$     2,095,610
6/30/2019	$                                                      293,519	$     2,106,481
12/31/2019	$                                                      282,648	$     2,117,352
Requirement 5
Jun 30	Interest Expense	$         118,871
	Discount on Bond Payable		$         10,871
	Cash		$       108,000
Dec 31	Interest Expense	$         118,871
	Discount on Bond Payable		$         10,871
	Cash		$       108,000