Question

Hillside issues $1,400,000 of 5%, 15-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,713,594.

Required:
1. Prepare the January 1 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 a straight-line amortization table.
5. Prepare the journal entries to record the first two interest payments.

Answer 1

Solution 1:
Journal Entries - Hillside
Date	Particulars	Debit	Credit
1-Jan-19	Cash A/c Dr	$1,713,594.00
	To Bonds payable		$1,400,000.00
	To Premium on issue of bond		$313,594.00
	(To record issue of bond at premium)

Solution 2a:
Computation of Semiannual cash interest payment
Par (maturity Value)	Annual Rate	Semiannual period	Semiannual cash interest payment
$1,400,000.00	5%	2	$35,000.00

Solution 2b:
Computation of Semiannual premium amortization
Bond Price	Par (maturity Value)	Premium on bond payable	Semiannual periods	Straight line premium amortization
$1,713,594.00	$1,400,000.00	$313,594.00	30	$10,453

Solution 2c:
Computation of bond interest expense
Semiannual cash payment	Premium amortization	Bond Interest Expense
$35,000.00	$10,453	$24,547

Solution 3:
Total bond interest expense over the life of bond
Particulars	Amount
Amount Repaid:
30 semiannual interest payments of $35,000 each	$1,050,000.00
Par Value at Maturity	$1,400,000.00
Total Repaid	$2,450,000.00
Less: Amount borrowed	$1,713,594.00
Total bond interest expense	$736,406.00

Solution 4:
First two years amortization table using straight line method
Semiannual period end	Unamortized premium	Carrying value of bond
1-Jan-19	$313,594.00	$1,713,594.00
30-Jun-19	$303,141.00	$1,703,141.00
31-Dec-19	$292,688.00	$1,692,688.00
30-Jun-20	$282,235.00	$1,682,235.00
31-Dec-20	$271,782.00	$1,671,782.00

Solution 5:
Journal Entries - Hillside
Date	Particulars	Debit	Credit
30-Jun-19	Interest Expense Dr	$24,547.00
	Premium on bond Dr	$10,453.00
	To Cash		$35,000.00
	(Being first semiannual interest payment made and premium amortized)
31-Dec-19	Interest Expense Dr	$24,547.00
	Premium on bond Dr	$10,453.00
	To Cash		$35,000.00
	(Being 2nd semiannual interest payment made and premium amortized)