Question

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.

	2(a) Par (maturity) value Annual Rate Year Semiannual cash interest payment = 2(b) Par (maturity) value Bonds price Discount on Bonds Payable Semiannual periods Straight-line discount amortization = = 2(c) Semiannual cash payment Discount amortization Bond interest expense

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

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

Prepare the first two years of a straight-line amortization table.

	Semiannual Period-End Unamortized Discount Carrying Value 01/01/2019 06/30/2019 12/31/2019 06/30/2020 12/31/2020

• 1

  Record the first interest payment on June 30.

• 2

  Record the second interest payment on December 31.

Answer 1

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