Question

Problem 10-2A Straight-Line: Amortization of bond discount LO P1, P2 Hillside issues $1,100,000 of 9%, 15-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31 The bonds are issued at a price of $950,524. Required: 1. Prepare the January 1, 2017, 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. Reg 1 Req 2A to 2C Reg 3 Reg 4 Reg 5 Prepare the January 1, 2017, journal entry to record the bonds' issuance.

Answer 1

Solution 1:

Journal Entries - Hillside
Date	Particulars	Debit	Credit
01-Jan-17	Cash A/c Dr	$9,50,524
	Discount on Bond payable Dr	$1,49,476
	To Bond payable		$11,00,000
	(To record issue of bond at Discount)

Solution 2a:

Computation of Semiannual cash interest payment
Par (maturity Value)	Annual Rate	Semiannual period	Semiannual cash interest payment
$11,00,000.00	9%	2	$49,500.00

Solution 2b:

Computation of Semiannual premium amortization
Par (maturity Value)	Bond price	Discount on bond payable	Semiannual periods	Straight line Discount amortization
$11,00,000	$9,50,524	$1,49,476	30	$4,983

Solution 2c:

Computation of bond interest expense
Semiannual cash payment	Discount amortization	Bond Interest Expense
$49,500	$4,983	$54,483

Solution 3:

Total bond interest expense over the life of bond
Particulars	Amount
Amount Repaid:
30 semiannual interest payments of $49,500 each	$14,85,000
Par Value at Maturity	$11,00,000
Total Repaid	$25,85,000
Less: Amount borrowed	$9,50,524
Total bond interest expense	$16,34,476

Solution 4:

First two years amortization table using straight line method
Semiannual period end	Unamortized Discount	Carrying value of bond
01-Jan-17	$1,49,476	$9,50,524
30-Jun-17	$1,44,493	$9,55,507
31-Dec-17	$1,39,510	$9,60,490
30-Jun-18	$1,34,527	$9,65,473
31-Dec-18	$1,29,544	$9,70,456

Solution 5:

Journal Entries - Hillside
Date	Particulars	Debit	Credit
30-Jun-17	Interest Expense Dr	$54,483
	To Discount on bond Dr		$4,983
	To Cash		$49,500
	(Being first semiannual interest payment made and Discount amortized)
31-Dec-17	Interest Expense Dr	$54,483
	To Discount on bond Dr		$4,983
	To Cash		$49,500
	(Being 2nd semiannual interest payment made and Discount amortized)