Hillside issues $3,000,000 of 6%, 15-year bonds dated January 1, 2017, that pay

Question

Hillside issues $3,000,000 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 $2,592,334.

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

1 Date General Journal Debit Credit 1-Jan-15 Cash 2,592,334 Discount on bonds payable 407,666 Bonds payable 3,000,000 2a Par (maturity) value Annual Rate Year Semiannual cash interest payment $3,000,000 x 6% x 6/12 = $90,000 2b Par (maturity) value Bonds price Discount on Bonds Payable Semiannual periods Straight-line discount amortization $3,000,000 - $2,592,334 = $407,666 ÷ 30 = $13,589 2c Semiannual cash payment Discount amortization Bond interest expense $90,000 + $13,589 = $103,589 3 Total bond interest expense over life of bonds: Amount repaid: 30 payments of $90,000 $2,700,000 Par value at maturity 3,000,000 Total repaid $5,700,000 Less amount borrowed -2,592,334 Total bond interest expense 3107666 4 Semiannual Period-End Unamortized Discount Carrying Value 1/1/2015 $407,666 $2,592,334 6/30/2015 394,077 $2,605,923 12/31/2015 380,488 $2,619,512 6/30/2016 366,899 $2,633,101 12/31/2016 353,310 $2,646,690 5 Date General Journal Debit Credit 30-Jun-15 Bond interest expense 103,589 Discount on bonds payable 13,589 Cash 90,000 31-Dec-15 Bond interest expense 103,589 Discount on bonds payable 13,589 Cash 90,000

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