Question

Ellis issues 8.0%, five-year bonds dated January 1, 2017, with a $430,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $466,680. The annual market rate is 6% on the issue date. Required: 1. Complete the below table to calculate the total bond interest expense over the bonds' life. 2. Prepare a straight-line amortization table for the bonds' life. 3. Prepare the journal entries to record the first two interest payments. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Complete the below table to calculate the total bond interest expense over the bonds' life. Total bond interest expense over life of bonds: Amount repaid: payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense Required 1 Required 2

Answer 1

Solution 1:

Total bond interest expense Over life of bonds:
Amount Paid:
6 Payments of ($430,000*8%*6/12=$17200) each	$1,72,000
Par Value at maturity	$4,30,000
Total Repaid	$6,02,000
Less: Amount Borrowed	$4,66,680
Total Bond interest Expense	$1,35,320

Solution 2:

Semiannual period-End	Unamortized premium	Carrying Value
01-01-2017	$36,680	$4,66,680
6/30/2017	$33,012	$4,63,012
12/31/2017	$29,344	$4,59,344
6/30/2018	$25,676	$4,55,676
12/31/2018	$22,008	$4,52,008
6/30/2019	$18,340	$4,48,340
12/31/2019	$14,672	$4,44,672
6/30/2020	$11,004	$4,41,004
12/31/2020	$7,336	$4,37,336
6/30/2021	$3,668	$4,33,668
12/31/2021	$0	$4,30,000

Solution 3:

Date	Account title	Debit	Credit
30-Jun-17	Bond Interest Expense Dr	20868
	To Discount on Bond paybale ($36680/10)		3668
	To Cash ($430000*8%*6/12)		17200
31-Dec-17	Bond Interest Expense Dr	20868
	To Discount on Bond paybale ($51181/10)		3668
	To Cash ($430000*8%*6/12)		17200