Question

Hillside issues $1,900,000 of 5%, 15-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,641,812. Required: 1. Prepare the January 1, 2015, journal entry to record the bonds' issuance. View transaction list Journal entry worksheet Record the issue of bonds with a par value of $1,900,000 cash on January 1, 2015 at an issue price of $1,641,812. Note: Enter debits before credits. Date General Journal Debit Credit Jan 01, 2015 Record entry Clear entry View general journal

Answer 1

Answer 1.

Face Value = $1,900,000
Proceed from Issuance = $1,641,812

Discount on Bonds Payable = Face Value - Proceed from Issuance
Discount on Bonds Payable = $1,900,000 - $1,641,812
Discount on Bonds Payable = $258,188

Debit Credit Date Jan. 01, 2015 General Journal Cash Discount on Bonds Payable Bonds Payable 1,641,812 258,188 1,900,000

Answer 2-a.

Annual Coupon Rate = 5.00%

Semiannual Coupon = Par Value * Annual Rate * Year
Semiannual Coupon = $1,900,000 * 5.00% * 1/2
Semiannual Coupon = $47,500

Answer 2-b.

Semiannual Periods = 30 (15 years)

Straight-line Discount Amortization = Discount on Bonds Payable / Semiannual Periods
Straight-line Discount Amortization = $258,188 / 30
Straight-line Discount Amortization = $8,606

Answer 2-c.

Bond Interest Expense = Semiannual Cash Payment + Discount Amortization
Bond Interest Expense = $47,500 + $8,606
Bond Interest Expense = $56,106

Answer 3.

Total bond interest expense over life of bonds: Amount repaid: 30 payments of 47500 Par value at maturity Total repaid Less: amount borrowed Total bond interest expense 1425000 1900000 3325000 1641812 1683188

Answer 4.

Carrying Value Semiannual Period End 01/01/2015 06/30/2015 12/31/2015 06/30/2016 12/31/2016 Unamortized Discount 258188 249582 240976 232370 223764 1641812 1650418 1659024 166 7630 1676236

Answer 5.

Credit Date June 30, 2015 Debit 56,106 General Journal Interest Expense Discount on Bonds Payable Cash Interest Expense Discount on Bonds Payable Cash 8,606 47,500 Dec. 31, 2015 56,106 8,606 47,500