Question

10-3

Hillside issues $2,100,000 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 $2,570,390.

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.

For each semiannual period, complete the table below to calculate the cash payment, straight-line premium amortization and bond interest expense. (Round "Unamortized Premium" to whole dollar and use the rounded value for part 4 & 5.)

Par (maturity) value Annual Rate Year Semiannual cash interest payment not attempted not attempted not attempted not attempted not attempted = not attempted Bond price Par (maturity value) Premium on Bonds Payable Semiannual periods Straight-line premium amortization not attempted not attempted not attempted = not attempted not attempted not attempted = not attempted Semiannual cash payment Premium amortization Bond interest expense not attempted not attempted not attempted = not attempted

Answer 1

Journal entry
Date	General Journal				Debit	Credit
1/1/2018	Cash				2,570,390
	premium on bonds					470,390
	bonds payable					2,100,000
2-a)	par maturity value			Annual rate	/	year	semi annual cash payment
	2,100,000		*	5%		6./12	52500
							semi annual		Straight line
2-b)	bond price		par value		premium		periods		premium amortization
	2,570,390	-	2,100,000	=	470,390	/	30	=	15680
2-c)	Semi annual cash			premium		bond interest expense
	payment			amortization
	52,500		-	15680	=	36,820
3)	total bond interest expense over life of bonds
	amount repaid
	30	payments of		52,500	1575000
		par value ant maturity			2,100,000
	total repaid				3675000
	less amount borrowed				2,570,390
	total bond interest expense.				1,104,610
	(note bond interest expense may differ slightly due to rounding)
4)		unamort	Carrying
	period	premium	value
	1/1/2018	470,390	2,570,390
	06/30/18	454,710	2,554,710
	12/31/18	439,031	2,539,031
	06/30/19	423,351	2,523,351
	12/31/19	407,671	2,507,671
5)
Date	General Journal				Debit	Credit
6/30/18	interest expense				36,820
	premium on bonds payable				15,680
	cash					52,500
31/12/2018
	interest expense				36,820
	premium on bonds payable					15,680
	cash					52,500