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

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 $3,456,448. 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(d) 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

Journal entry Date General Journal Debit Credit 1/1/2017 Cash 3,456,448 discount on bonds 543,552 bonds payable 4,000,000 2-a) par maturity value Annual rate / year semi annual cash payment 4,000,000 * 6% 6./12 120000 semi annual Straight line 2-b) par value bonds price Discount periods disc amortization 4,000,000 - 3,456,448 = 543,552 / 30 = 18118 2-c) Semi annual cash Discount bond interest expense payment amortization 120,000 + 18118 = 138,118 3) total bond interest expense over life of bonds amount repaid 30 payments of 120,000 3600000 par value ant maturity 4,000,000 total repaid 7600000 less amount borrowed 3,456,448 total bond interest expense. 4,143,552 (note bond interest expense may differ slightly due to rounding) 4) unamort Carrying period discount value 1/1/2017 543,552 3,456,448 6/30/2017 525,434 3,474,566 12/31/2017 507,315 3,492,685 6/30/2018 489,197 3,510,803 12/31/2018 471,078 3,528,922 5) Date General Journal Debit Credit 6/30/2016 interest expense 138,118 Discount on bonds payable 18,118 cash 120,000 31/12/2016 interest expense 138,118 discount on bonds payable 18,118 cash 120,000

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