Question

Ellis issues 7.0%, five-year bonds dated January 1, 2017, with a $510,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $531,752. The annual market rate is 6% on the issue date.

Required:

1. Complete the below table to calculate the total bond interest expense over the bonds' life.
2. Prepare a straight-line amortization table for the bonds’ life.
3. Prepare the journal entries to record the first two interest payments.

Complete the below table to calculate the total bond interest expense over the bonds' life.

	Total bond interest expense over life of bonds: Amount repaid: payments of Par value at maturity Total repaid 0 Less amount borrowed Total bond interest expense $0

Prepare a straight-line amortization table for the bonds’ life.

	Semiannual Period-End Unamortized Premium Carrying Value 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 06/30/2019 12/31/2019 06/30/2020 12/31/2020 06/30/2021 12/31/2021

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

1
Total bond interest expense over life of bonds:
Amount repaid:
10 payments of $17850	178500
Par value at maturity	510000
Total repaid	688500
Less amount borrowed	531752
Total bond interest expense	156748
2
Semiannual Interest Period ­End	Unamortized Premium	Carrying Value
01/01/2017	21752	531752
06/30/2017	19577	529577
12/31/2017	17402	527402
06/30/2018	15227	525227
12/31/2018	13052	523052
06/30/2019	10877	520877
12/31/2019	8702	518702
06/30/2020	6527	516527
12/31/2020	4352	514352
06/30/2021	2177	512177
12/31/2021	0	510000
3
Date	General Journal	Debit	Credit
June 30,2017	Bond interest expense	15675
	Premium on bonds payable	2175		=21752/5*6/12
	Cash		17850	=510000*7%*6/12
Dec 31,2017	Bond interest expense	15675
	Premium on bonds payable	2175
	Cash		17850