Question

Legacy issues $570,000 of 8.5%, four-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. They are issued at $508,050 when the market rate is 12%.

1. Determine the total bond interest expense to be recognized.
Total bond interest expense over life of bonds:
Amount repaid:
8 payments of $24,225 $193,800
Par value at maturity 570,000
Total repaid 763,800
Less amount borrowed 645 669
Total bond interest expense $118.131
2. Prepare a straight-line amortization table for the bonds' first two years.
Semiannual Period End Unamortized Discount Carrying Value
01/01/2019
06/30/2019
12/31/2019
06/30/2020
12/31/2020
3. Record the interest payment and amortization on June 30. Note:
Date General Journal Debit Credit
June 30
4. Record the interest payment and amortization on December 31.
Date General Journal Debit Credit
December 31

Answer 1

1) Determine the total bond interest expense to be recognized.

Total bond interest expense over life of bonds:

Amount repaid:

8 payments of $24,225: $193,800

Par value at maturity: $570,000

Total repaid: $763800 (193,800 + 570,000)

Less amount borrowed: $508050

Total bond interest expense: $255750 (763800 - 508,050)

2)Prepare a straight-line amortization table for the bonds' first two years.

Semiannual Interest Period­ End; Unamortized Discount; Carrying Value

01/01/2019 61,950 508,050

06/30/2019 54,206 515,794

12/31/2019 46,462 523,538

06/30/2020 38,718 531,282

12/31/2020 30,974 539,026

3) Record the interest payment and amortization on June 30:

June 30 Bond interest expense, dr 31969

Discount on bonds payable, Cr (61950/8) 7743.75

Cash, Cr ( 570000*8.5%/2) 24225

4) Record the interest payment and amortization on December 31:

Dec 31 Bond interest expense, Dr 31969

Discount on bonds payable, Cr 7744

Cash, Cr 24225