Question

Hillside issues $2,600,000 of 5%, 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 $3,182,390. 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 premium 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.

Answer 1

1
Date	General Journal	Debit	Credit
Jan 01, 2017	Cash	3,182,390
	Premium on bonds payable		582,390
	Bonds payable		2,600,000
2a
Par (maturity) value		Annual Rate		Year		Semiannual cash interest payment
$2,600,000	x	5%	x	6/12	=	$65,000
b
Bonds price		Par (maturity) value		Premium on Bonds Payable		Semiannual periods		Straight-line premium amortization
$3,182,390	-	$2,600,000	=	$582,390	÷	30	=	$19,413
c
Semiannual cash payment		Premium amortization		Bond interest expense
65,000	-	19,413	=	45,587
3
Total bond interest expense over life of bonds:
Amount repaid:
30	payments of	65,000	1950000
Par value at maturity			2,600,000
Total repaid			4,550,000
Less amount borrowed			3,182,390
Total bond interest expense			1,367,610
4
Semiannual Period-End	Unamortized Premium	Carrying Value
1/1/2017	$582,390	$3,182,390
6/30/2017	562,977	$3,162,977
12/31/2017	543,564	$3,143,564
6/30/2018	524,151	$3,124,151
12/31/2018	504,738	$3,104,738
Date	General Journal	Debit	Credit
30-Jun-17	Bond interest expense	45,587
	Premium on bonds payable	19413
	Cash		65,000
31-Dec-17	Bond interest expense	45,587
	Premium on bonds payable	19413
	Cash		65,000