Question

Hillside issues $1,100,000 of 9%, 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 $1,346,395. 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 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 a straight-line amortization table. 5. Prepare the journal entries to record the first two interest payments.

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 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 a straight-line amortization table.
5. Prepare the journal entries to record the first two interest payments.

Answer 1

Solutions:

1.

	Issuance of Bonds
01-Jan-19	Cash	1346395
	Bonds Payable		1100000
	Premium on Bonds Payable		246395
	To record the issuance of bond at a premium

2.a.	Par (Maturity Value)	Annual Rate	Year	Semi Annual Cash Interest Payment
	1100000	9%	2019	49500
2.b.	Par (Maturity Value)	Bonds Price	Premium on Bonds Payable	Semi Annual Periods	Straight line Premium Amortisation
	1100000	1346395	246395	30	8213.17
2.c.	Semi Annual Cash Payment	Premium Amortization	Bond Interest Expense
	49500	8213.17	41286.83

3	Total Bond Expense over life of bonds
	Amount repaid
	30	payments of	49500	1485000
	Par Value at maturity			1100000
	Total repaid			2585000
	Less: Amount borrowed			1346395
	Total Bond Interest Expense			1238605

4	Semi Annual Period End	Unamortised Premium	Carrying Value
	01-01-2019		1346395
	30-06-2019	8213.17	1338181.83
	31-12-2019	8213.17	1329968.67
	30-06-2020	8213.17	1321755.50
	31-12-2020	8213.17	1313542.33

5
Date	To record Interest
30-06-2019	Interest Expense	41286.83
	Premium on Bonds Payable	8213.17
	Cash		49500
	To record interest premium
31-12-2019	Interest Expense	41286.83
	Premium on Bonds Payable	8213.17
	Cash		49500
	To record interest premium