Hillside issues $2,800,000 of 8%, 15-year bonds dated January 1, 2016, that pay
ID: 2435387 • Letter: H
Question
Hillside issues $2,800,000 of 8%, 15-year bonds dated January 1, 2016, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,427,190. Required 1. Prepare the January 1, 2016, journal entry to record the bonds' issuance. Journal entry worksheet Record the issue of bonds with a par value of s2,800,000 cash on Jamuary 2016 at an issue prnice of $3,427,10 debits before cret 2. (a) For each semiannual period, complete the table below to compute the cash payment. 2. (b) For each semiannual period, complete the table below to compute the straight-line premium amortization. price 2. (c) For each semiannual period, complete the table below to compute the bond interest expenseExplanation / Answer
Cash a/c --------------------------------------Dr $3427190
To premium on bonds a/c-------------------------------$ 627190
To bonds payable a/c------------------------------------$ 2800.000
( Being issue of bonds at a premium)
Working Note: Premium on bond
=$3427190- $ 2800,000= $ 627190
2 (a) Computation of cash payment
Par (Maturity) value
$ 2800,000
Annual Rate
8%
Years
15
Semiannual cash Interest
Payment
=$2800,000*0.08/2= $112000
2 (b) Computation of straight line premium amortization
Bond price
$3427190
Par(maturity)
value
$2800000
Premium
on bonds payable
$627190
Semi
Annual
Periods
30
Straight line
Premium
Amortization
$627190/30
=$ 20906.33
2(c ) Computation of bond interest for semiannual period
Semiannual
Cash payment
$112000
Premium
Amortization
$20906.33
Bond interest Expense
$112000-$20906.33
=$ 91093.67
3.Computation of Total Bond Interest expense over the life of the bonds
Amount Repaid
30 payments of $ 112000 $ 33,60,000
Par value at maturity $ 2800,000
Therefore TOTAL REPAID $ 61,60,000
Less: Amount borrowed $ 34,27,190
Total Bond Interest Expense $ 27,32,810
4. Computation of first 2 years of Amortisation Table using the straight-line method
Semi annual
Period end
Unamortized
Premium
Carrying
Value
Jan1,2016
$ 627190
$ 34,27,190
June 30,2016
$ 606283.67
$ 34,06,283.67
Dec 31,2016
$ 585377.34
$ 33,85,377.34
June 30,2017
$ 564471.01
$ 33,64,471.01
Dec 31,2017
$ 543564.68
$ 33,43,564.68
5.Journal Entries for the first two interest payments:
Date
General Journal
Debit
Credit
June 30,2016
Bond interest expense
$ 91093.67
Premium on bonds payable
$ 20906.33
Cash
$ 112000
Dec 31,2016
Bond interest expense
$ 91093.67
Premium on bonds payable
$ 20906.33
Cash
$ 112000
Par (Maturity) value
$ 2800,000
Annual Rate
8%
Years
15
Semiannual cash Interest
Payment
=$2800,000*0.08/2= $112000
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