Question

Hillside issues $1,000,000 of 6%, 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 $864,113.

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 discount 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

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Answer:

1
Date	General Journal	Debit	Credit
1-Jan-19	Cash	864,113
	Discount on bonds payable	135,887
	Bonds payable		1,000,000
2a
Par (maturity) value		Annual Rate		Year		Semiannual cash interest payment
$1,000,000	x	6%	x	6/12	=	$30,000
b
Par (maturity) value		Bonds price		Discount on Bonds Payable		Semiannual periods		Straight-line discount amortization
$1,000,000	-	$864,113	=	$135,887	÷	30	=	$4,530
c
Semiannual cash payment		Discount amortization		Bond interest expense
$30,000	+	$4,530	=	$34,530
3
Total bond interest expense over life of bonds:
Amount repaid:
30	payments of	$30,000	900000
Par value at maturity			1,000,000
Total repaid			1900000
Less amount borrowed			864,113
Total bond interest expense			1,035,887
4
Semiannual Period-End	Unamortized Discount	Carrying Value
1/1/2019	$135,887	$864,113
6/30/2019	131,357	$868,643
12/31/2019	126,827	$873,173
6/30/2020	122,297	$877,703
12/31/2020	117,767	$882,233
Date	General Journal	Debit	Credit
30-Jun-19	Bond interest expense	34,530
	Discount on bonds payable		4,530
	Cash		30,000
31-Dec-19	Bond interest expense	34,530
	Discount on bonds payable		4,530
	Cash		30,000