Question

Problem 10-3A Straight-Line: Amortization of bond premium LO P1, P3 Hillside issues $3,000,000 of 6%, 15-year bonds dated January 1, 2018, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,671,990. Required: 1. Prepare the January 1, 2018, 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.

Answer 1

Journal entry
Date	General Journal				Debit	Credit
1/1/2018	Cash				3,671,990
	premium on bonds					671,990
	bonds payable					3,000,000
2-a)	par maturity value			Annual rate	/	year	semi annual cash payment
	3,000,000		*	6%		6./12	90000
							semi annual		Straight line
2-b)	bond price		par value		premium		periods		premium amortization
	3,671,990	-	3,000,000	=	671,990	/	30	=	22400
2-c)	Semi annual cash			premium		bond interest expense
	payment			amortization
	90,000		-	22400	=	67,600
3)	total bond interest expense over life of bonds
	amount repaid
	30	payments of		90,000	2700000
		par value ant maturity			3,000,000
	total repaid				5700000
	less amount borrowed				3,671,990
	total bond interest expense.				2,028,010
	(note bond interest expense may differ slightly due to rounding)
4)		unamort	Carrying
	period	premium	value
	1/1/2018	671,990	3,671,990
	06/30/18	649,590	3,649,590
	12/31/18	627,191	3,627,191
	06/30/19	604,791	3,604,791
	12/31/19	582,391	3,582,391
5)
Date	General Journal				Debit	Credit
6/30/18	interest expense				67,600
	premium on bonds payable				22,400
	cash					90,000
31/12/2018
	interest expense				67,600
	premium on bonds payable					22,400
	cash					90,000