Question

On December 31, 2018, when the market interest rate is 10%, Bilton Realty issues $1,100,000 of 11.25%, 10-year bonds payable. The bonds pay interest semiannually. Bilton Realty received $1,185,786 in cash at issuance. Requirements 1. Prepare an amortization table using the effective interest amortization method for the first two semiannual interest periods. (Round to the nearest dollar.) 2. Using the amortization table prepared in Requirement 1, journalize issuance of the bonds and the first two interest payments. Requirement 1. Prepare an amortization table using the effective interest amortization method for the first two semiannual interest periods. (Round to the nearest dollar.) Interest | Carrying Cash Paid Expense Amortized Amount 12/31/2018 06/30/2019 12/31/2019 Requirement 2. Using the amortization table prepared in Requirement 1, journalize issuance of the bonds and the first two interest payments. (Record debits first, then credits. Select explanations on the last line of the journal entry. Round your answers to the nearest whole dollar.) Start by journalizing the issuance of the bonds on December 31, 2018. Date Accounts and Explanation Debit Credit 2018 Dec. 31 Journalize the payment of the first semiannual interest amount and amortization of the bond on June 30, 2019. Date Accounts and Explanation Debit Credit 2019 Jun. 30 Journalize the payment of the second semiannual interest amount and amortization of the bond on December 31, 2019. Date Accounts and Explanation Debit Credit 2019 Dec. 31 L IL

Answer 1

Requirement 1:

	Cash Paid	Interest Expense	Premium Amortized	Carrying Amount
12/31/2018				$1,185,786
06/30/2019	$61,875	$59,289	$2,586	$1,183,200
12/31/2019	$61,875	$59,160	$2,715	$1,180,485

Explanation:

Cash paid = $1,100,000 x 11.25% x (6/12) = $61,875

Interest expense = Preceding Carrying amount x 10% x (6/12)

Premium amortized = Cash paid - Interest expense

Carrying amount = Preceding carrying amount - Premium amortized

Requirement 2:

Date	Accounts and Explanation	Debit	Credit
Dec 31,2018	Cash	$1,185,786
	Bonds payable		$1,100,000
	Premium on bonds payable		$85,786
	[To record issuance of bonds]
Jun. 30,2019	Interest expense	$59,289
	Premium on bonds payble	$2,586
	Cash		$61,875
	[To record paymet of first semi-annual interest and amortization of bond]
Jun. 30,2019	Interest expense	$59,160
	Premium on bonds payble	$2,715
	Cash		$61,875
	[To record paymet of second semi-annual interest and amortization of bond]