Hillside issues $2,200,000 of 7%, 15-year bonds dated January 1, 2017, that pay

Question

Hillside issues $2,200,000 of 7%, 15-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 3 The bonds are issued at a price of $1,901,046. 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 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.

Explanation / Answer

ans 1 Par (maturity) value Annual Rate Year Semiannual cash interest payment $2,200,000 7% 6/12 = $77,000 Par (maturity) value Bonds price Discount on Bonds Payable Semiannual periods Straight-line discount amortization $2,200,000 1901046 = $298,954 30 = $9,965.13 Semiannual cash payment Discount amortization Bond interest expense $77,000 $9,965 = $86,965 If not rounded off $9,965.13 $86,965.13 3 Total bond interest expense over life of bonds: Amount repaid: 30 payments of $77,000 $2,310,000 Par value at maturity $2,200,000 Total repaid $4,510,000 Less amount borrowed 1901046 Total bond interest expense $2,608,954 Total interest expense over the life (2200000*7%*15)+298954 2608954 Semiannual Period-End Unamortized Discount Carrying Value 1/1/2017 $298,954 1901046 6/30/2017 $288,989 $1,911,011 (298954-9965) (1901046+9965) 12/31/2017 $279,024 $1,920,976 6/30/2018 $269,059 $1,930,941 12/31/2018 $259,094 $1,940,906 ans 5 General Journal Dr Cr Jun 30 2017 Bond Interest expenses $86,965 Discount on Bond Payable $9,965 Cash $77,000 Dec 31 2017 Bond Interest expenses $86,965 Discount on Bond Payable $9,965 Cash $77,000 (being interest expenses recorded)

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