Question

Hillside issues $4,000,000 of 6%, 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 $4,895,980.

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.

	Par (maturity) value Annual Rate Year Semiannual cash interest payment = Bond price Par (maturity value) Premium on Bonds Payable Semiannual periods Straight-line premium amortization = = Semiannual cash payment Premium 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 $0

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

	Semiannual Period-End Unamortized Premium Carrying Value 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018

Answer 1

Date	General Journal	Debit	Credit
Jan 01, 2017	Cash	48,95,980
	Premium on bonds payable		8,95,980
	Bonds payable		40,00,000
2(a)
	Par (maturity) value		Annual Rate		Year		Semiannual cash interest payment
	$4,000,000	x	6%	x	6/12	=	120000
2(b)
	Par (maturity) value		Bonds price		Premium on Bonds Payable		Semiannual periods		Straight-line discount amortization
	4000000	-	48,95,980	=	8,95,980	÷	30	=	29866
2(c)
	Semiannual cash payment		Premium amortization		Bond interest expense
	120000	-	29866	=	90134
3
	Total bond interest expense over life of bonds:
	Amount repaid:
	30	payments of	120000	3600000
	Par value at maturity			40,00,000
	Total repaid			76,00,000
	Less amount borrowed			48,95,980
	Total bond interest expense			27,04,020
4.
	Semiannual Period-End	Unamortized Premium	Carrying Value
	01-01-2017	8,95,980	48,95,980
	06/30/2017	8,66,114	48,66,114
	12/31/2017	8,36,248	48,36,248
	06/30/2018	8,06,382	48,06,382
	12/31/2018	7,76,516	47,76,516
5
June-30-2017	Interest expense	90134
	Premium on bonds payable	29866
	Cash		120000
Dec-31-2017	Interest expense	90134
	Premium on bonds payable	29866
	Cash		120000