Question

Hillside issues $1,800,000 of 7%, 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 $2,203,194.

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.

Prepare the January 1, 2017, journal entry to record the bonds’ issuance.

No	Date	General Journal	Debit	Credit
1	Jan 01, 2017	Cash	2,203,194
		Bonds payable		1,800,000
		Premium on bonds payable		403,194

For each semiannual period, complete the table below to calculate the cash payment, straight-line premium amortization and bond interest expense. (Round "Unamortized Premium" to whole dollar and use the rounded value for part 4 & 5.)

	Par (maturity) value Annual Rate Year Semiannual cash interest payment = Bond price Par (maturity value) Premium on Bonds Payable Semiannual periods Straight-line premium amortization = = Semiannual cash payment Premium amortization Bond interest expense =

Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.

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

Prepare the first two years of an amortization table using the straight-line method

	Semiannual Period-End Unamortized Premium Carrying Value 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018

Record the first interest payment on June 30, 2017.

Note: Enter debits before credits.

Record the second interest payment on December 31, 2017.

	Date General Journal Debit Credit Jun 30, 2017 Dec 31, 2017

Answer 1

1
Date	General Journal	Debit	Credit
January 01,2017	Cash	2203194
	Premium on bonds payable		403194
	Bonds payable		1800000
2a
Par (maturity) value		Annual Rate		Year		Semiannual cash interest payment
1800000	x	7%	x	6/12	=	63000
b
Bonds price		Par (maturity) value		Premium on Bonds Payable		Semiannual periods		Straight-line premium amortization
2203194	-	1800000	=	403194	÷	30	=	13440
c
Semiannual cash payment		Premium amortization		Bond interest expense
63000	-	13440	=	49560
3
Total bond interest expense over life of bonds:
Amount repaid:
30	payments of	$63,000	1890000
Par value at maturity			1800000
Total repaid			3690000
Less amount borrowed			2203194
Total bond interest expense			1486806
4
Semiannual Period-End	Unamortized Premium	Carrying Value
1/1/2017	403194	2203194
6/30/2017	389754	2189754
12/31/2017	376314	2176314
6/30/2018	362874	2162874
12/31/2018	349434	2149434
5
Date	General Journal	Debit	Credit
June 30,2017	Bond interest expense	49560
	Premium on bonds payable	13440
	Cash		63000
December 31,2017	Bond interest expense	49560
	Premium on bonds payable	13440
	Cash		63000