Question

Hillside issues $1,800,000 of 7%, 15-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,555,401. Required: 1. Prepare the January 1, 2015, journal entry to record the bonds' issuance. View transaction list Journal entry worksheet Record the issue of bonds with a par value of $1,800,000 cash on January 1, 2015 at an issue price of $1,555,401. Note: Enter debits before credits. Date General Journal Debit Credit Jan 01, 2015 Record entry Clear entry View general journal

Answer 1

1 Journal Entry to record the bonds' issuance Date General Journal Cash Discount on Bonds Pavable Debit Credit Jan 01, 2015 $1,555,401.00 $244,599.00 Bonds Payable 1,800,000.00 2(a) Cash payment for each semiannual period Semiannual Cash interest Par (maturity) value Annaul Rate Year ent $1,800,000.00 796 15 $63,000.00 ($1,800,000*796*6/12) 2(b) Straight-line discount amortization for each semiannual period Discount on Bonds Payable 244,599.00 Semiannu eriods 30 Sraight line discount Par (maturity) value Bond Price amortization $8,153.30 ($244,599/30 $1,800,000.00 $1,555,401.00 2(c) bond interest expense for each semiannual period Semiannual cash Bond Interest expennse $71,153.30 $63,000+$8,153.30 Discount Amrtization ent $63,000.00 $8,153.30 ($244,599/30 ($1,800,000*796*6/12)

3 Total bond interest expense to be recognised over the life of these bonds Total bond interest exepnses over life of bonds: Amount repaid: $63,000.00$1,890,000.00 1,800,000.00 $3,690,000.00 $1,555,401.00 $2,134,599.00 30 Par value at maturit ment of Total repaid Less amount borrowed Total bond interest expense 4 Amortization table using the SLM to amortize the discount for first two years Semiannual period end 01/01/2015 06/30/2015 12/31/2015 06/30/2016 12/31/2016 Unamortized Discount $244,599.00 $236,445.70 $228,292.40 $220,139.10 $211,985.80 Carrying Value $1,555,401.00 $1,563,554.30 $1,571,707.60 $1,579,860.90 $1,588,014.20 5 Journal entry to record first two interest payments Date General Journal Debit Credit une 30, 2015 Interest expense $71,153.30 Discount on Bonds Pavable Cash $8,153.30 $63,000.00 Date December 31, 2015 General Journal Debit Credit Interest expense $71,153.30 Discount on Bonds Pavable Cash $8,153.30 $63,000.00