Question

Hillis Corporation issued $600,000 of 13% bonds on January 1, 2015, for $614,752.24. The bonds are due December 31, 2017, were issued to yield 12%, and pay interest semiannually on June 30 and December 31. Hillis uses the effective interest method.

Required:
1.Prepare a bond interest expense and premium amortization schedule.

Answer 1

To prepare a bond interest expense and premium amortization schedule, calculate the bond interest expense, premium amortization, and bond carrying amount for each interest payment period, based on the effective interest rate. Subtract the bond interest expense from the interest payment received to calculate the premium amortization and calculate the new carrying amount of the bond by subtracting the premium amortization from the previous carrying amount.

Step-by-step explanation:

To prepare a bond interest expense and premium amortization schedule, we need to calculate the bond interest expense, premium amortization, and bond carrying amount for each interest payment period.

First, calculate the bond interest expense by multiplying the carrying amount of the bond by the effective interest rate. In this case, the effective interest rate is given as 12%.

Next, calculate the premium amortization by subtracting the bond interest expense from the interest payment received. The premium is the difference between the bond issue price and the face value of the bond. Finally, calculate the new carrying amount of the bond by subtracting the premium amortization from the previous carrying amount.