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 = Par (maturity) value Bonds price Discount on Bonds Payable Semiannual periods Straight-line discount amortization = = Semiannual cash payment Discount amortization Bond interest expense =

Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.

	Total bond interest expense over life of bonds: Amount repaid: payments of Par value at maturity Total repaid 0 Less amount borrowed Total bond interest expense $

Prepare the first two years of an amortization table using the straight-line method.

	Semiannual Period-End Unamortized Discount Carrying Value 01/01/2018 06/30/2018 12/31/2018 06/30/2019 12/31/2019

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

Journal entry worksheet

• Record the first interest payment on June 30, 2018.

Note: Enter debits before credits.

	Date General Journal Debit Credit Jun 30, 2018

• Record the second interest payment on December 31, 2018.

Note: Enter debits before credits.

	Date General Journal Debit Credit Dec 31, 2018

Answer 1

1
Date	General Journal	Debit	Credit
1-Jan-18	Cash	2,073,868
	Discount on bonds payable	326,132
	Bonds payable		2,400,000
2a
Par (maturity) value		Annual Rate		Year		Semiannual cash interest payment
$2,400,000	x	9%	x	6/12	=	$108,000
b
Par (maturity) value		Bonds price		Discount on Bonds Payable		Semiannual periods		Straight-line discount amortization
$2,400,000	-	$2,073,868	=	$326,132	÷	30	=	$10,871
c
Semiannual cash payment		Discount amortization		Bond interest expense
$108,000	+	$10,871	=	$118,871
3
Total bond interest expense over life of bonds:
Amount repaid:
30	payments of	$108,000	3240000
Par value at maturity			2,400,000
Total repaid			5,640,000
Less amount borrowed			2,073,868
Total bond interest expense			3,566,132
4
Semiannual Period-End	Unamortized Discount	Carrying Value
1/1/2018	$326,132	$2,073,868
6/30/2018	315,261	$2,084,739
12/31/2018	304,390	$2,095,610
6/30/2019	293,519	$2,106,481
12/31/2019	282,648	$2,117,352
Date	General Journal	Debit	Credit
30-Jun-18	Bond interest expense	118,871
	Discount on bonds payable		10,871
	Cash		108,000
31-Dec-18	Bond interest expense	118,871
	Discount on bonds payable		10,871
	Cash		108,000