Hillside issues $2,700,000 of 7%, 15-year bonds dated January 1, 2017, that pay

Question

Hillside issues $2,700,000 of 7%, 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 $2,333,101 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 Jan 01, 2017 Cash 23,33,101 Discount on bonds payable 3,66,899 Bonds payable 2700000 2a Par (maturity) value Annual Rate Year Semiannual cash interest payment 2700000 x 7% x 6/12 = 94500 b Par (maturity) value Bonds price Discount on Bonds Payable Semiannual periods Straight-line discount amortization 2700000 - 23,33,101 = 3,66,899 ÷ 30 = 12230 c Semiannual cash payment Discount amortization Bond interest expense 94500 + 12230 = 106730 3 Total bond interest expense over life of bonds: Amount repaid: 30 payments of 94500 2835000 Par value at maturity 27,00,000 Total repaid 55,35,000 Less amount borrowed -23,33,101 Total bond interest expense 3201899 4 Semiannual Period-End Unamortized Discount Carrying Value 01-01-2017 3,66,899 23,33,101 06/30/2017 3,54,669 23,45,331 12/31/2017 3,42,439 23,57,561 06/30/2017 3,30,209 23,69,791 12/31/2017 3,17,979 23,82,021 5 Date General Journal Debit Credit Jun 30, 2017 Bond interest expense 1,06,730 Discount on bonds payable 12,230 Cash 94,500 Dec 31, 2017 Bond interest expense 1,06,730 Discount on bonds payable 12,230 Cash 94,500

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