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 $3,456,448.

Required

1. Prepare January 1, 2017, journal entry to record the bonds’ issuance.

2. For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization, and (c) the bond interest expense.

3. Determine the total bond interest expense to be recognized over the bonds’ life.

4. Prepare the first two years of an amortization table like Exhibit 14.7 u

Answer 1

Journal entry
Date	General Journal				Debit	Credit
1/1/2017	Cash				3,456,448
	discount on bonds				543,552
	bonds payable					4,000,000
2-a)	par maturity value			Annual rate	/	year	semi annual cash payment
	4,000,000		*	6%		6./12	120000
							semi annual		Straight line
2-b)	par value		bonds price		Discount		periods		disc amortization
	4,000,000	-	3,456,448	=	543,552	/	30	=	18118
2-c)	Semi annual cash			Discount		bond interest expense
	payment			amortization
	120,000		+	18118	=	138,118
3)	total bond interest expense over life of bonds
	amount repaid
	30	payments of		120,000	3600000
		par value ant maturity			4,000,000
	total repaid				7600000
	less amount borrowed				3,456,448
	total bond interest expense.				4,143,552
	(note bond interest expense may differ slightly due to rounding)
4)		unamort	Carrying
	period	discount	value
	1/1/2017	543,552	3,456,448
	6/30/2017	525,434	3,474,566
	12/31/2017	507,315	3,492,685
	6/30/2018	489,197	3,510,803
	12/31/2018	471,078	3,528,922
5)
Date	General Journal				Debit	Credit
6/30/2016	interest expense				138,118
	Discount on bonds payable					18,118
	cash					120,000
31/12/2016
	interest expense				138,118
	discount on bonds payable					18,118
	cash					120,000