Question

Ellis Company issues 8.5%, five-year bonds dated January 1, 2019, with a $420,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $464,786. The annual market rate is 6% on the issue date.

Required:
1. Compute the total bond interest expense over the bonds' life.
2. Prepare an effective interest amortization table for the bonds’ life.

3. Prepare the journal entries to record the first two interest payments.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Compute the total bond interest expense over the bonds' life.

	Total bond interest expense over life of bonds: Amount repaid: 10 payments of Par value at maturity Total repaid 0 Less amount borrowed    Total bond interest expense $0

• Required 1
• Required 2
• Required 3

Prepare an effective interest amortization table for the bonds’ life.

	Semiannual Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value 01/01/2019 06/30/2019 12/31/2019 06/30/2020 12/31/2020 06/30/2021 12/31/2021 06/30/2022 12/31/2022 06/30/2023 12/31/2023 Total

Note: Enter debits before credits.

	Date General Journal Debit Credit Jun 30, 2019

Note: Enter debits before credits.

	Date General Journal Debit Credit Dec 31, 2019

Answer 1

1
Total bond interest expense over life of bonds:
Amount repaid:
10 payments of $17850	178500
Par value at maturity	420000
Total repaid	598500
Less amount borrowed	464786
Total bond interest expense	133714
2
Semiannual Interest Period­End	Cash Interest Paid	Bond Interest Expense	Premium Amortization	Unamortized Premium	Carrying Value
01/01/2019				44786	464786
06/30/2019	17850	13944	3906	40880	460880
12/31/2019	17850	13826	4024	36856	456856
06/30/2020	17850	13706	4144	32712	452712
12/31/2020	17850	13581	4269	28443	448443
06/30/2021	17850	13453	4397	24046	444046
12/31/2021	17850	13321	4529	19517	439517
06/30/2022	17850	13186	4664	14853	434853
12/31/2022	17850	13046	4804	10049	430049
06/30/2023	17850	12901	4949	5100	425100
12/31/2023	17850	12750	5100	0	420000
Total	178500	133714	44786
3
Date	General Journal	Debit	Credit
June 30,2019	Bond interest expense	13944		=464786*6%*6/12
	Premium on bonds payable	3906
	Cash		17850	=420000*8.5%*6/12
Dec 31,2019	Bond interest expense	13826		=460880*6%*6/12
	Premium on bonds payable	4024
	Cash		17850	=420000*8.5%*6/12