Heathrow issues $2,200,000 of 7%, 15-year bonds dated January 1, 2011, that pay

Question

Heathrow issues $2,200,000 of 7%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $2,692,790.

Prepare the January 1, 2011, journal entry to record the bonds%u2019 issuance. (Omit the "$" sign in your response.)

For each semiannual period, compute the cash payment. (Omit the "$" sign in your response.)

For each semiannual period, compute the the straight-line premium amortization. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

For each semiannual period, compute the the bond interest expense. (Omit the "$" sign in your response.)

Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "$" sign in your response.)

Prepare the first two years of an amortization table using the straight-line method. (Omit the "$" sign in your response.)

Prepare the journal entries to record the first two interest payments. (Omit the "$" sign in your response.)

Heathrow issues $2,200,000 of 7%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $2,692,790.

Explanation / Answer

Heathrow issues $2,700,000 of 7%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $2,333,101.
That means the discount is $366,899, amortised over 30 interest periods, i.e. amortise $12,230 each period. Carrying value of a bond is the face value ($2,700,000) minus the Unamortized Discount.

1. Prepare the January 1, 2011, journal entry to record the bonds%u2019 issuance
For this answer I have Dr. cash $2333101, Dr. discount on bonds payable $366899 and Cr. Bonds payable $2700000. - Correct

2(a)For each semiannual period, compute the cash payment
I have $94500 - Correct

2(b)For each semiannual period, compute the the straight-line discount amortization
I have $12230 - Correct

2(c)For each semiannual period, compute the bond interest expense
I have $94500 - Incorrect. The answer is $106,730
The entry is:
Dr Interestt expense $106,730
Cr Cash $94,500
Cr Discount on bonds payable $12,230

3.Determine the total bond interest expense to be recognized over the bonds' life
This would be the actual paid out in cash $94,500 x 30 = $2,835,000 + Discount on bonds payable = $3,201,899.

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

Semi
annual
period .... unamortised
end; ........ discount; ...... Carrying Value
1/1/11; ..... $366,899; ........ $2,333,101
6/30/11 .... $354,669; ........ $2,345,331
12/31/11 .. $342,439; ........ $2,357,561
6/3/12 ...... $330,209; ........ $2,369,791
12/31/12 ...$317,979; ........ $2,382,021

5. Prepare the journal entries to record the first two interest payments.
Both entries are the same because You're using the straight-line amortization method:
Dr Interest expense $106,730
Cr Cash $94,500
Cr Discount on bonds payable $12,230

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