Question

Hillside issues $2,600,000 of 5%, 15-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,182,390. Required:.1. For each semiannual period, complete the table below to calculate the cash payment.2. For each semiannual period, complete the table below to calculate the straight-line premium amortization. (Round "Unamortized Premium" to whole dollar and use the rounded value for part 4 & 5.)3. For each semiannual period, complete the table below to calculate the bond interest expense.4. Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life5. Prepare the first two years of an amortization table using the straight-line method6. Prepare the journal entries to record the first two interest payments.7. Prepare the January 1, 2015, journal entry to record the bonds’ issuance.

Answer 1

Answer:

1.- thwe cash payment are the same for each period as the coupon bond rate is fixed:

2,600,000 face value x 5% coupon rate / 2 payment per year = 65,000

On the last payment, we are going to calculate 65,000 + face value

2,600,000 + 65,000 = 2,665,000

2.- amortization per period 19,513

3.- interest expense per period 45,487

4.- 45,487 interest expense per period x 30 payment dates =  1,364,610

cash    3,182,390  debit

   bonds payable   2,600,000 credit

   premium on BP     585,390 credit

-- to record issuance --

interest expense 45,487 debit

premium on BP    19,513 debit

    cash                                  65,000 credit

-- entry for each payment date--

Explanation:

proceeds: 3,182,390

face value: 2,600,000

premium:       585,390

amortization per period:

585,390 / 30 payment = 19,513

This will be the amortization on the premium on bonds payable for each payment

3.- as the amortization is fixed under straight-line method the interest expense is also fixed:

65,000 cash proceeds - 19,513 amortization = 45,487 interest expense