Question

Hillside issues $1,900,000 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 $1,641,812. 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

Part 1

Date	General Journal	Debit	Credit
Jan 01, 2017	Cash	1641812
	Discount on bonds payable	258188
	Bonds payable		1900000

Part 2 a

Par (maturity) value		Annual Rate		Year		Semiannual cash interest payment
1900000	x	5%	x	6/12	=	$47500

Part 2 b

Par (maturity) value		Bonds price		Discount on Bonds Payable		Semiannual periods		Straight-line discount amortization
1900000	-	1641812	=	258188	÷	30	=	$8606

Part 2 c

Semiannual cash payment		Discount amortization		Bond interest expense
$47500	+	$8606	=	$56106

Part 3

Total bond interest expense over life of bonds:
Amount repaid:
30	Payments of	$47500	1425000
Par value at maturity			1900000
Total repaid			3325000
Less amount borrowed			(1641812)
Total bond interest expense			$1683188

Part 4

Semiannual Period-End	Unamortized Discount	Carrying Value
1/1/2017	258188	1641812
6/30/2017	249582	1650418
12/31/2017	240976	1659024
6/30/2018	232370	1667630
12/31/2018	223764	1676236

Unamortized discount = previous unamortized discount – 8606

Carrying value = previous carrying value + 8606

Part 5

No.	Date	General journal	Debit	Credit
1	June 30, 2017	Bond Interest Expense	56106
		Discount on Bonds Payable		8606
		Cash		47500
2	December 31, 2017	Bond Interest Expense	56106
		Discount on Bonds Payable		8606
		Cash		47500