In: Accounting
Hillside issues $4,000,000 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 $3,456,448.
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.
1. Record the issue of bonds with a par value of $4,000,000 cash on
January 1, 2019 at an issue price of $3,456,448
2. For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization, and (c) the bond interest expense.
|
Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.
|
Prepare the first two years of a straight-line amortization table.
|
1
Record the first interest payment on June 30.
2
Record the second interest payment on December 31.
Part 1 | |||||
Date | Accounts and explanation | Debit(in $) | Credit(in $) | ||
Jan 1,2019 | Cash | 34,56,448 | |||
Discount on Bond Payable | 5,43,552 | ||||
Bond Payable | 40,00,000 | ||||
Part 2 | |||||
Par Value | Annual Rate | Year | Semiannual cash payment | ||
Cash Payment each period | $ 40,00,000 | 6.00% | 0.5 | $ 1,20,000 | |
Bond Price | Par Value | Discount on Bond payable | semiannual period | Straight-line premium amortization | |
Premium amortization | $ 34,56,448 | $ 40,00,000 | $ 5,43,552 | 30 | $ 18,118 |
Semiannual cash payment | Premium amortization | Bond Interest expense | |||
Bond Interest expenses | $ 1,20,000 | $ 18,118 | $ 1,38,118 | ||
Part 3 | |||||
Amount repaid: | |||||
30 payments of $120,000 | |||||
Par value at maturity | $ 40,00,000 | ||||
Total repaid | $ 76,00,000 | ||||
Less:Amount borrowed | $ 34,56,448 | ||||
Total Bond interest expense | $ 41,43,552 | ||||
Part 4 | |||||
Amortization Table-As per Straight-Line method | |||||
Date | Interest Payment | Interest expenses | Discount amorrtization | Unamortized Discount | Closing carrying amount |
Col I | Col II | Col III(Col II + Col IV) | Col IV | Col V | Col VI |
Total Bond interest expense | $ 5,43,552 | $ 34,56,448 | |||
1 | $ 1,20,000 | $ 1,38,118 | $ 18,118 | $ 5,25,434 | $ 34,74,566 |
2 | $ 1,20,000 | $ 1,38,118 | $ 18,118 | $ 5,07,316 | $ 34,92,684 |
Part 5 | |||||
Date | Accounts and explanation | Debit(in $) | Credit(in $) | ||
June 30,2019 | Interest expenses | $ 1,38,118 | |||
Premium on Bond payable | $ 18,118 | ||||
Cash | $ 1,56,236 | ||||
Dec 31,2019 | Interest expenses | $ 1,38,118 | |||
Premium on Bond payable | $ 18,118 | ||||
Cash | $ 1,56,236 | ||||