Problem 143A StraightLine Amortization of bond premium LO P1

Problem 14-3A Straight-Line: Amortization of bond premium LO P1, P3 Hillside issues $3,000,000 of 6%, 15-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31, The bonds are issued at a price of $3,.671.990 Required: 1. Prepare the January 1, 2017 journal entry to record the bonds issuance. 2la) For each semiannual perio 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 an amortization table using the straight-line method 5. Prepare the journal entries to record the first two interest payments. d, complete the table below to calculate the cash payment

Solution

Req 1: Journal entry: Date Accounts title and explanations Debit $ Credit $ 01.01.17 Cash Account Dr. 3,671,990     Bonds payable 3,000,000     Premium on Bonds payable Account 671,990 Req 2 Par value * Annual Rate * Year = Semi Annual Interest payment 3,000,000 6% 0.5 90000 Bond price - Par value = Premium / Semi Annual period = Straight Line Amortization 3671990 3000000 671990 30 22400 Semi annual cash payment - Premium        = Bond interest Amortization    Expensne 90000 22400 67600 Req 3: Amount repaid: 15 payments of $ 90000 1350000 par valueu at maturity 3000000 Total repaid 4350000 Less: Amount borrowed 3671990 Total interest expense 678010 Req 4: amortization table Semi Period Unamortized Carrying Premium Amount 01.01.17 671990 3671990 30.06.17 649590 3649590 31.12.17 627190 3627190 30.06.18 604790 3604790 31.12.18 582390 3582390 Req 5: Journal entries: Date Accounts title and explanations Debit $ Credit $ 30.06.17 Interest expense Account Dr. 67600 Premium on Bonds payable Dr. 22400       Cash account 90000 31.12.17 Interest expense Account Dr. 67600 Premium on Bonds payable Dr. 22400       Cash account 90000