Question

Hillside issues 4,000,000, 6% 15-year bonds dated January 1,2017. The bonds pay interest semi-annually on June 30 and December 31. The bonds were issued at $3,456,448

1. Record the journal entry to issue the bonds on January 1,2017

2. a. record the journal entry to pay the semi-annual interest payment and amortize the discount on June 30,2017

b. Record the journal entry to pay the semi-annual interest payment and amortize the discount on dec. 31,2017

3. a. record the journal entry to pay the semi-annual interest payment and amortize the discount on June 30,2018

b. Record the journal entry to pay the semi-annual interest payment and amortize the discount on Dec. 31,2018

4. On March 31,2022, Hillside calls the bonds at 101. Record the journal entry to the call the bonds

5. What is the total interest expense for the bonds for:

a. one full year?

b. The entire fifteen year life of the bond?(if the bond had been held until maturity)

6. What is carrying value of the bonds on:

a. December 31,2017 ?

b. December 31,2018 ?

Answer 1

1) Journal Entry (Amounts in $)

Date	General Journal	Debit	Credit
Jan 1, 2017	Cash	3,456,448
	Discount on Bonds Payable (Bal fig) (4,000,000-3,456,448)	543,552
	Bonds Payable		4,000,000
	(To record the issue of bonds)

2) (It is assumed that the company uses straight line method to amortize the discount on bonds payable).

Cash Payment of Interest = Face Value of Bonds*Interest Rate*6/12

= $4,000,000*6%*6/12 = $120,000

Total no. of semi annual periods = 15 years*2 = 30 periods

Discount on Bonds Payable to be amortized each period = $543,552/30 = $18,118

Bond Interest Expense = Cash Payment + Discount Amortized

= $120,000 + $18,118 = $138,118

Journal Entries (Amounts in $)

No.	Date	General Journal	Debit	Credit
a)	June 30, 2017	Bond Interest Expense	138,118
		Discount on Bonds Payable		18,118
		Cash		120,000
		(To record first interest payment)
b)	Dec 31, 2017	Bond Interest Expense	138,118
		Discount on Bonds Payable		18,118
		Cash		120,000
		(To record the second interest payment)

3)   Journal Entries (Amounts in $)

No.	Date	General Journal	Debit	Credit
a)	June 30, 2018	Bond Interest Expense	138,118
		Discount on Bonds Payable		18,118
		Cash		120,000
		(To record third interest payment)
b)	Dec 31, 2018	Bond Interest Expense	138,118
		Discount on Bonds Payable		18,118
		Cash		120,000
		(To record the forth interest payment)

4) Journal Entry (Amounts in $)

Date	General Journal	Debit	Credit
Mar 31, 2022	Bonds Payable	4,000,000
	Loss on early extinguishment (Bal fig) (4,040,000+362,372-4,000,000)	402,372
	Discount on Bonds Payable [543,552 - (18,118*10 periods)] (Jan 1, 2017 to Dec 31, 2021)		362,372
	Cash (4,000,000*1.01)		4,040,000