Question

Hillside issues $1,400,000 of 5%, 15-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,713,594. Required: 1. Prepare the January 1, 2017, 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 premium 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 an amortization table using the straight-line method 5. Prepare the journal entries to record the first two interest payments.

Answer 1

Answer 1.

Answer 2-a.

Face Value = $1,400,000

Annual Coupon Rate = 5%
Semiannual Coupon Rate = 2.50%

Semiannual Cash Payment = Face Value * Semiannual Coupon Rate
Semiannual Cash Payment = $1,400,000 * 2.50%
Semiannual Cash Payment = $35,000

Answer 2-b.

Premium on Bonds = $313,594

Time to Maturity = 15 years
Semiannual Period to Maturity = 30

Semiannual Amortization of Premium = Premium on Bonds / Semiannual Period to Maturity
Semiannual Amortization of Premium = $313,594 / 30
Semiannual Amortization of Premium = $10,453

Answer 2-c.

Semiannual Interest Expense = Semiannual Cash Payment - Semiannual Amortization of Premium
Semiannual Interest Expense = $35,000 - $10,453
Semiannual Interest Expense = $24,547

Answer 3.

Answer 4.

Answer 5.