Question

Hillside issues $4,000,000 of 6%, 15-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $4,895,980.Required:1. Prepare the January 1 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.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 a straight-line amortization table.5. Prepare the journal entries to record the first two interest payments.1. Record the issue of bonds with a par value of $4,000,000 on January 1, 2019 at an issue price of $4,895,980.For each semiannual period, compute (a) the cash payment, (b) the straight-line premium amortization, and (c) the bond interest expense.2(a) Par (maturity) value Annual Rate Year Semiannual cash interest payment = 2(b) Bond price Par (maturity value) Premium on Bonds Payable Semiannual periods Straight-line premium amortization= = 2(c) Semiannual cash payment Premium amortization Bond interest expense Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life.Total bond interest expense over life of bonds:Amount repaid:payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense Prepare the first two years of a straight-line amortization table.Semiannual Period-End Unamortized Premium Carrying Value01/01/2019 06/30/2019 12/31/2019 06/30/2020 12/31/2020 Prepare the journal entries to record the first two interest payments.1. Record the first interest payment on June 30.2. Record the second interest payment on December 31.

Answer 1

The bond issuance at a premium, semiannual interest payments, premium amortization, and bond interest expense calculations are all key components of accounting for bonds. Over the life of the bond, the total bond interest expense and premium amortization are tallied, affecting the bond's carrying value.

Step-by-step explanation:

To record the issuance of the bonds on January 1, 2019, Hillside would debit cash for $4,895,980 and credit bonds payable for $4,000,000. The difference of $895,980 is a premium on the bonds, indicating that they were issued above their face value and would be credited to the Premium on Bonds Payable account.

Each semiannual cash payment is calculated as (6% annual rate * $4,000,000 par value)/2, which equals $120,000. The straight-line premium amortization is the total premium divided by the number of semiannual periods over the life of the bonds ($895,980/30), resulting in $29,866 per period. The bond interest expense for each semiannual period is the cash payment minus the premium amortization ($120,000 - $29,866), resulting in $90,134.

Over the life of the bond, the total bond interest expense recognized will be the sum of the semiannual bond interest expenses. This does not include the repayment of the par value because that is a return of the principal, not an expense.

For the first two years of the straight-line amortization table, we will list the semiannual periods, note the unamortized premium at the beginning of each period, and calculate the carrying value by adding the unamortized premium to the par value.

The journal entries for the first two interest payments will include a debit to interest expense for the bond interest expense amount, a debit to the Premium on Bonds Payable for the premium amortization amount, and a credit to cash for the semiannual cash payment.