Question

Hillside issues $3,000,000 of 6%, 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 $2,592,334.

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 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 an amortization table using the straight-line method.
5. Prepare the journal entries to record the first two interest payments.

Answer 1

1
Date	General Journal	Debit	Credit
1-Jan-15	Cash	2,592,334
	Discount on bonds payable	407,666
	Bonds payable		3,000,000
2a
Par (maturity) value		Annual Rate		Year		Semiannual cash interest payment
$3,000,000	x	6%	x	6/12	=	$90,000
2b
Par (maturity) value		Bonds price		Discount on Bonds Payable		Semiannual periods		Straight-line discount amortization
$3,000,000	-	$2,592,334	=	$407,666	÷	30	=	$13,589
2c
Semiannual cash payment		Discount amortization		Bond interest expense
$90,000	+	$13,589	=	$103,589
3
Total bond interest expense over life of bonds:
Amount repaid:
30	payments of	$90,000	$2,700,000
Par value at maturity			3,000,000
Total repaid			$5,700,000
Less amount borrowed			-2,592,334
Total bond interest expense			3107666
4
Semiannual Period-End	Unamortized Discount	Carrying Value
1/1/2015	$407,666	$2,592,334
6/30/2015	394,077	$2,605,923
12/31/2015	380,488	$2,619,512
6/30/2016	366,899	$2,633,101
12/31/2016	353,310	$2,646,690
5
Date	General Journal	Debit	Credit
30-Jun-15	Bond interest expense	103,589
	Discount on bonds payable		13,589
	Cash		90,000
31-Dec-15	Bond interest expense	103,589
	Discount on bonds payable		13,589
	Cash		90,000