Question

Problem 10-2A Straight-Line: Amortization of bond discount LO P1, P2 Hillside issues $1,900,000 of 5%, 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 $1,641,812. 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 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

Journal entry
Date	General Journal				Debit	Credit
1/1/2018	Cash				1,641,812
	discount on bonds				258,188
	bonds payable					1,900,000
2-a)	par maturity value			Annual rate	/	year	semi annual cash payment
	1,900,000		*	5%		6./12	47500
							semi annual		Straight line
2-b)	par value		bonds price		Discount		periods		disc amortization
	1,900,000	-	1,641,812	=	258,188	/	30	=	8606
2-c)	Semi annual cash			Discount		bond interest expense
	payment			amortization
	47,500		+	8606	=	56,106
3)	total bond interest expense over life of bonds
	amount repaid
	30	payments of		47,500	1425000
		par value ant maturity			1,900,000
	total repaid				3325000
	less amount borrowed				1,641,812
	total bond interest expense.				1,683,188
	(note bond interest expense may differ slightly due to rounding)
4)		unamort	Carrying
	period	discount	value
	1/1/2018	258,188	1,641,812
	6/30/2018	249,582	1,650,418
	12/31/2018	240,975	1,659,025
	6/30/2019	232,369	1,667,631
	12/31/2019	223,763	1,676,237
5)
Date	General Journal				Debit	Credit
6/30/2018	interest expense				56,106
	Discount on bonds payable					8,606
	cash					47,500
31/12/2018
	interest expense				56,106
	discount on bonds payable					8,606
	cash					47,500