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Hillside issues $2,500,000 of 6%, 15-year bonds dated January 1, 2015, that pay interest semiannually on...

Hillside issues $2,500,000 of 6%, 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 $3,059,990. Required: 1. Prepare the January 1, 2015, 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 premium amortization. (Round "Unamortized Premium" to whole dollar and use the rounded value for part 4 & 5.) 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.

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Homework Answers

Answer #1

Face Value = $2,500,000
Proceed from Issue = $3,059,990

Premium on Issue = Proceed from Issue - Face Value
Premium on Issue = $3,059,990 - $2,500,000
Premium on Issue = $559,990

Answer 1.

Answer 2-a.

Semiannual Cash Payment = Face Value * Annual Stated Rate * Year
Semiannual Cash Payment =$2,500,000 * 6% * 1/2
Semiannual Cash Payment = $75,000

Answer 2-b.

Semiannual Amortization of Premium = Premium on Bonds / Semiannual Period to Maturity
Semiannual Amortization of Premium = $559,990 / 30
Semiannual Amortization of Premium = $18,666

Answer 2-c.

Semiannual Interest Expense = Semiannual Cash Payment - Semiannual Amortization of Premium
Semiannual Interest Expense = $75,000 - $18,666
Semiannual Interest Expense = $56,334

Answer 3.

Answer 4.

Answer 5.

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