Question

Hillside issues $1,600,000 of 9%, 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 $1,958,394.

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.

Answer 1

req 1.
Cash account Dr.			1958394
Bonds payable				1600000
Premium on Bonds payable				358394
Req 2-a:
par value of bonds *		Int rate*	period =	Cash interest
1600000         *		9% *	0.5=	72000
Req 2-b:
Total premium   /		Number of Semi annual periods=			Straight line Premium amortized
358394            /		30    =			11946.47
Req 2-c
Cash Interest    -		Straight line Premium amortized    =				Interest expense
72000           -		11946.47 =				60053.53
Req 3.
Amount repiad:
30 payment of interest of $ 72000				2160000
Maturity value repaid				1600000
Amount repayment				3760000
Less: Amount borrowed				1958394
Total Interest expenses				1801606
Req 4.
Amort Chart
Date	Cash Int	int Expenses	Premium	Unamortized	Carrying
			Amortized	premium	value of bonds
01.01.17				358394	1958394
30.06.17	72000	60053.53	11946.47	346447.5	1946448
31.12.17	72000	60053.53	11946.47	334501.1	1934501
30.06.18	72000	60053.53	11946.47	322554.6	1922555
31.12.18	72000	60053.53	11946.47	310608.1	1910608
Req 5.
Interest payments:
30.06.17	Interest expense Dr.			60053.53
	Premium on bonds payable Dr.			11946.47
	cash account				72000
31.12.17	Interest expense Dr.			60053.53
	Premium on bonds payable Dr.			11946.47
	cash account				72000