Hillside issues $4,000,000 of 6%, 15-year bonds dated January 1, 2017, that pay

Question

Hillside issues $4,000,000 of 6%, 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 $4,895,980.

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 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.

Explanation / Answer

1) Date General Journal Debit Credit January 1, 2017 Cash $            48,95,980 Bonds Payable $       40,00,000 Premium on bonds payable $          8,95,980 (To record issuance of bonds payable) 2) a) Semi annual cash payment = Par Value x Semi annual coupon rate = $       40,00,000 x 3% = $          1,20,000 b) Premium on Bonds Payable $               8,95,980 / Semi annual period 30 Straight Line premium amortization $                  29,866 c) Straight Line premium amortization $                  29,866 Semi annual cash payment $               1,20,000 Bond's Interest Expense $               1,49,866 3) 30 Semi annual coupon interest payment $               1,20,000 x 30 = $ 36,00,000 Par Value at the time of maturity $ 40,00,000 Total $ 76,00,000 Less Current Price of bonds payable $ 48,95,980 Bonds Interest Expense $ 27,04,020 4) Amortization Table of first two interest payments: Semi annual period Cash interest paid Interest Expense Premium amortized Carrying Value January 1, 2017 $ 48,95,980 June 30, 2017 $                                                           1,20,000 $               1,49,866 $             29,866 $ 48,66,114 Dec 31, 2017 $                                                           1,20,000 $               1,49,866 $             29,866 $ 48,36,248 June 30, 2018 $                                                           1,20,000 $               1,49,866 $             29,866 $ 48,06,382 Dec 31, 2018 $                                                           1,20,000 $               1,49,866 $             29,866 $ 47,76,516 5) Date General Journal Debit Credit June 30, 2017 Interest Expense $               1,49,866 Cash $          1,20,000 Premium on bonds payable $             29,866 (To record interest expense) Dec 31, 2017 Interest Expense $               1,49,866 Cash $          1,20,000 Premium on bonds payable $             29,866 (To record interest expense)

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