Question

Hillside issues $2,900,000 of 9%, 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 $2,505,923.

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.

• Record the issue of bonds with a par value of $2,900,000 cash on January 1, 2017 at an issue price of $2,505,923.

Note: Enter debits before credits.

	Date General Journal Debit Credit Jan 01, 2017

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

Total bond interest expense over life of bonds: Amount repaid: payments of Par value at maturity Total repaid 0 Less amount borrowed Total bond interest expense $0

Semiannual Period-End Unamortized Discount 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

	Date General Journal Debit Credit Jun 30, 2017

Record the second interest payment on December 31, 2017.

	Date General Journal Debit Credit Dec 31, 2017

Answer 1

1) Record the issue of bonds with a par value of $2,900,000 cash on January 1, 2017 at an issue price of $2,505,923.
Date	General Journal	Debit	Credit
Jan 01, 2017	Cash	$ 25,05,923.00
	Discount on Bonds payable	$   3,94,077.00
	Bonds Payable		$      29,00,000.00
2(a)
Par (maturity) value		Annual Rate	Year		Semiannual cash interest payment
$                                                                                 29,00,000.00	x	9%	6/12	=	$     1,30,500.00
2(b)
Par (maturity) value		Bonds price		Discount on Bonds Payable		Semiannual periods		Straight-line discount amortization
$                                                                                 29,00,000.00	-	$ 25,05,923.00	=	$        3,94,077.00	/	30	=	$        13,135.90
2 ( c)
Semiannual cash payment		Discount amortization		Bond interest expense
$                                                                                   1,30,500.00	+	$      13,135.90	=	$        1,43,635.90
3)
Total bond interest expense over life of bonds:
Amount repaid:
30	payments of	$   1,30,500.00	$      39,15,000.00
Par value at maturity			$      29,00,000.00
Total repaid			$      68,15,000.00
Less amount borrowed			$    -25,05,923.00
Total bond interest expense			$      43,09,077.00
Semiannual Period-End	Unamortized Discount	Carrying Value
01/01/2017	$                                       3,94,077.00	$ 25,05,923.00
06/30/2017	$                                       3,80,941.10	$ 24,92,787.10
12/31/2017	$                                       3,67,805.20	$ 24,79,651.20
06/30/2018	$                                       3,54,669.30	$ 24,66,515.30
12/31/2018	$                                       3,41,533.40	$ 24,53,379.40
Record the first interest payment on June 30, 2017
Date	General Journal	Debit	Credit
Jun 30, 2017	Bond interest expense	$   1,43,635.90
	Discount on Bonds Payable		$           13,135.90
	Cash		$        1,30,500.00
Record the second interest payment on December 31, 2017.
Date	General Journal	Debit	Credit
Dec 31, 2017	Bond interest expense	$   1,43,635.90
	Discount on Bonds Payable		$           13,135.90
	Cash		$        1,30,500.00