Question

Hillside issues $1,900,000 of 5%, 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 $1,641,812. 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. Complete this question by entering your answers in the tabs below.

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 General Journal Credit Date Cash Jan. 01, 2019 1,641,812 Discount on Bonds Payable 258,188 Bonds Payable 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 Par value at maturity Totalrepaid Less: amount borrowed Total bond interest expense 47500 1425000 1900000 3325000 1641812 1683188

Answer 4.

Semiannual Unamortized Carrying Value Period End Discount 01/01/2019 06/30/2019 258188 1641812 249582 1650418 12/31/2019 06/30/2020 12/31/2020 240976 1659024 232370 1667630 223764 1676236

Answer 5.

General Journal Debit Credit Date Interest Expense 56,106 June 30, 2019 Discount on Bonds Payable 8,606 Cash 47,500 Interest Expense Dec. 31, 2019 56,106 Discount on Bonds Payable 8,606 Cash 47,500