Question

Hillside issues $4,000,000 of 6%, 15-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,456,448.

Required:
1.	Prepare the January 1, 2015, 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. January 1, 2015, journal entry to record the bonds’ issuance

Year	Particulars	L.F	Debit ($)	Credit ($)
Jan-01	Cash		3,456,448
	Unamortized Bond Discount		543,552
	Bond payable			4,000,000
	(for bond issued for 15 years)

2a., 2b, and 2c.

Amortization Table to shown cash payment, discount amortization and interest expense is as shown below:

	A	B	C	D	E
Semiannual Interest Period	Cash Interest Paid	Bond Interest Expense	Discount amortization	Discount	Carrying Value at end of period
	4,000,000*6%*6/12	A+C	543,552/30		E+C
0				$ 543,552.00	$3,456,448.00
1	$120,000	$138,118	$18,118.4	$525,434	$3,474,566

3. 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:
30 semi-annual Interest payment of 120,000 (4,000,000*6%*6/12)	3,600,000
Par value of maturity	4,000,000
Cash Ouflow	7,600,000
less: Cash Inflow	3,456,448
Total bond Interest Expense	4,143,552

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

	A	B	C	D	E
Semiannual Interest Period	Cash Interest Paid	Bond Interest Expense	Discount amortization	Discount	Carrying Value at end of period
	4,000,000*6%*6/12	A+C	543,552/30		E+C
0				$ 543,552.00	$3,456,448.00
1	$120,000	$138,118	$18,118.4	$525,434	$3,474,566
2	$120,000	$138,118	$18,118.4	$507,315	$3,492,685
3	$120,000	$138,118	$18,118.4	$489,197	$3,510,803
4	$120,000	$138,118	$18,118.4	$471,078	$3,528,922
5	$120,000	$138,118	$18,118.4	$452,960	$3,547,040
6	$120,000	$138,118	$18,118.4	$434,842	$3,565,158
7	$120,000	$138,118	$18,118.4	$416,723	$3,583,277
8	$120,000	$138,118	$18,118.4	$398,605	$3,601,395
9	$120,000	$138,118	$18,118.4	$380,486	$3,619,514
10	$120,000	$138,118	$18,118.4	$362,368	$3,637,632
11	$120,000	$138,118	$18,118.4	$344,250	$3,655,750
12	$120,000	$138,118	$18,118.4	$326,131	$3,673,869
13	$120,000	$138,118	$18,118.4	$308,013	$3,691,987
14	$120,000	$138,118	$18,118.4	$289,894	$3,710,106
15	$120,000	$138,118	$18,118.4	$271,776	$3,728,224
16	$120,000	$138,118	$18,118.4	$253,658	$3,746,342
17	$120,000	$138,118	$18,118.4	$235,539	$3,764,461
18	$120,000	$138,118	$18,118.4	$217,421	$3,782,579
19	$120,000	$138,118	$18,118.4	$199,302	$3,800,698
20	$120,000	$138,118	$18,118.4	$181,184	$3,818,816
21	$120,000	$138,118	$18,118.4	$163,066	$3,836,934
22	$120,000	$138,118	$18,118.4	$144,947	$3,855,053
23	$120,000	$138,118	$18,118.4	$126,829	$3,873,171
24	$120,000	$138,118	$18,118.4	$108,710	$3,891,290
25	$120,000	$138,118	$18,118.4	$90,592	$3,909,408
26	$120,000	$138,118	$18,118.4	$72,474	$3,927,526
27	$120,000	$138,118	$18,118.4	$54,355	$3,945,645
28	$120,000	$138,118	$18,118.4	$36,237	$3,963,763
29	$120,000	$138,118	$18,118.4	$18,118	$3,981,882
30	$120,000	$138,118	$18,118.4	($0)	$4,000,000

5. journal entries to record the first two interest payments.

Date	Particulars	L.F	Debit ($)	Credit ($)
June-30	Interest expense		138,118
	Unamortized Bond Discount			18,118
	Cash (4,000,000*6%*6/12)			120,000
	(For interest paid on 6% bonds and amortization of discount)
Date	Particulars	L.F	Debit ($)	Credit ($)
Dec-31	Interest expense		138,118
	Unamortized Bond Discount			18,118
	Cash (4,000,000*6%*6/12)			120,000
	(For interest paid on 6% bonds and amortization of discount)