Question

Hillside issues $1,000,000 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 $1,223,995.

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.

Journal entry worksheet

Record the issue of bonds with a par value of $1,000,000 cash on January 1, 2017 at an issue price of $1,223,995.

Note: Enter debits before credits.

Date General Journal Debit Credit Jan 01, 2017 For each semiannual period, complete the table below to calculate the cash payment, straight-line premium amortization and bond interest expense. (Round "Unamortized Premium" to whole dollar and use the rounded value for part 4 & 5.) 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: 30 payments of $30,000 $900,000 Par value at maturity 1,000,000 Total repaid 1,900,000 Less amount borrowed 1,223,995 Total bond interest expense $676,005 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 Record the first interest payment on June 30, 2017. Note: Enter debits before credits. Date General Journal Debit Credit Jun 30, 2017 Record the second interest payment on December 31, 2017. Note: Enter debits before credits. Date General Journal Debit Credit Dec 31, 2017

Answer 1

Journal entry
Date	General Journal				Debit	Credit
1/1/2016	Cash				1,223,995
	premium on bonds					223,995
	bonds payable					1,000,000
2-a)	par maturity value			Annual rate	/	year	semi annual cash payment
	1,000,000		*	6%		6./12	30000
							semi annual		Straight line
2-b)	bond price		par value		premium		periods		disc amortization
	1,223,995	-	1,000,000	=	223,995	/	30	=	7467
2-c)	Semi annual cash			premium		bond interest expense
	payment			amortization
	30,000		-	7467	=	29,979
3)	total bond interest expense over life of bonds
	amount repaid
	30	payments of		30,000	900000
		par value ant maturity			1,000,000
	total repaid				1900000
	less amount borrowed				1,223,995
	total bond interest expense.				676,005
	(note bond interest expense may differ slightly due to rounding)
4)		unamort	Carrying
	period	premium	value
	1/1/2016	223,995	1,223,995
	6/30/2016	216,529	1,216,529
	12/31/2016	209,062	1,209,062
	6/30/2017	201,596	1,201,596
	12/31/2017	194,129	1,194,129
5)
Date	General Journal				Debit	Credit
6/30/2016	interest expense				22,533
	Premium on bonds payable				7,467
	cash					30,000
31/12/2016
	interest expense				22,533
	premium on bonds payble				7,467
	cash					30,000