Question

Hillside issues $4,000,000, 6%, 15-year bonds dated January 1, 2017. The bonds pay interest semi-annually on June 30 and December 31. The bonds were issued at $3,456,448. 1. Record the journal entry to issue the bonds on January 1, 2017. 2. a. Record the journal entry to pay the semi-annual interest payment and amortize the discount on June 30, 2017. b. Record the journal entry to pay the semi-annual interest payment and amortize the discount on Dec. 31, 2017. 3. a. Record the journal entry to pay the semi-annual interest payment and amortize the discount on June 30, 2018. b. Record the journal entry to pay the semi-annual interest payment and amortize the discount on Dec. 31, 2018.

Answer 1

1
Date	General Journal	Debit	Credit
1-Jan-17	Cash	3,456,448
	Discount on bonds payable	543,552
	Bonds payable		4000000
2a
Par (maturity) value		Annual Rate		Year		Semiannual cash interest payment
$4,000,000	x	6%	x	6/12	=	$120,000
b
Par (maturity) value		Bonds price		Discount on Bonds Payable		Semiannual periods		Straight-line discount amortization
$4,000,000	-	$3,456,448	=	$543,552	÷	30	=	$18,118
c
Semiannual cash payment		Discount amortization		Bond interest expense
$120,000	+	$18,118	=	$138,118
3
Total bond interest expense over life of bonds:
Amount repaid:
30	payments of	$120,000	$3,600,000
Par value at maturity			4,000,000
Total repaid			7600000
Less amount borrowed			-3,456,448
Total bond interest expense			4143552
4
Semiannual Period-End	Unamortized Discount	Carrying Value
1/1/2017	$543,552	$3,456,448
6/30/2017	525,434	3,474,566
12/31/2017	507,316	3,492,684
6/30/2018	489,198	3,510,802
12/31/2018	471,080	3,528,920
5
Date	General Journal	Debit	Credit
30-Jun-17	Bond interest expense	138,118
	Discount on bonds payable		18,118
	Cash		120,000
31-Dec-17	Bond interest expense	138,118
	Discount on bonds payable		18,118
	Cash		120,000