Question

Hillside issues $1,200,000 of 8%, 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 $1,468,794.

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.
01.01.17	Cash Account Dr.			1468794
	Bonds payable				1200000
	Premium on bonds payable				268794
Req 2-a:
Cash payment:
Par value *		Rate *	Period =		Semi Annual Interest
1200000    *		8% *	0.5   =		48000
Stright line premium:
Total Premium   /		Number of periods    =			Straight Line premium amortized
268794        /		30			8959.8
Bond interest expenses
Cash Interest   -		Straight line Premium amortized=			Bond Interest expenses
48000         -		8959.8			39040.2
Req 3.
Total Bond interest:
Amount repaid:
30 payments of 48000 each			1440000
par value of bond			1200000
Amount repaid:			2640000
Less: Amount borrowed			1468794
Total Bond interest:			1171206
Req 4.
Date		Premium		Carrying
		Unamortized		Value
01.01.17		268794		1468794
30.06.17		259834.2		1459834
31.12.17		250874.4		1450874
30.06.18		241914.6		1441915
31.12.18		232954.8		1432955
Req 5.
Journal entries:
Date	Accounts title and explanations				Debit $	Credit $
30.06.17	Interest expenses Dr.				39040.2
	Premium on bonds payable Dr.				8959.8
	Cash account					48000
31.12.17	Interest expenses Dr.				39040.2
	Premium on bonds payable Dr.				8959.8
	Cash account					48000