Romero issues 3400000 of 10 10year bonds dated January 1 201

Romero issues $3,400,000 of 10%, 10-year bonds dated January 1, 2017, that pay interest semiannual! y on June 30 and December 31. The bonds are issued at a price of $3,010,000. Required 1. Prepare the January 1, 2017, journal entry to record the bonds\' issuance miannual period, compute (a) the cash payment, () the straight-line discount amortization, and (c) the bond interest expense. 3. Determine the total bond interest expense to be recognized over the bonds\' life. 4. Prepare the first two years of an amortization table like Exhibit 14.7 using the straight-line method. 5. Prepare the journal entries to record the first two interest payments. Refer to the bond details in Problem 14-2B, except assume that the bonds are issued at a price of $4,192,932 Required 1. Prepare the January 1, 2017, journal entry to record the bonds\' issuance. 2. For each semiannual period, compute (a) the cash payment, (b) the straight-line premium amortiza tion, and (c) the bond interest expense 3. Determine the total bond interest expense to be recognized over the bonds\' life. 4. Prepare the first two years of an amortization table like Exhibit 14.11 using the straight-line method. 5. Prepare the journal entries to record the first two interest payments.

Solution

Part 1

2017

Jan.   1

Cash.....................................................................

4,192,932

      Premium on Bonds Payable...........................

      792,932

      Bonds Payable................................................

3,400,000

   Sold bonds on issue date at a premium.

Part 2

(a) Cash Payment = $3,400,000 x 10% x 6/12 year = $170,000

(b) Premium = $4,192,932 - $3,400,000 = $792,932

      Straight-line premium amortization= $792,932/20 semiannual periods

                                                              = $ 39,647   rounded

(c) Bond interest expense = $170,000 - $39,647 = $130,353

Part 3

Twenty payments of $170,000..........

$3,400,000

Par value at maturity........................

3,400,000

Total repaid......................................

6,800,000

Less amount borrowed....................

(4,192,932)

Total bond interest expense............

$2,607,068

   or:

Twenty payments of $170,000..........

$3,400,000

Less premium..................................

    (792,932)

Total bond interest expense............

$2,607,068

Part 4

Semiannual

Period-End

Unamortized

Premium

Carrying

Value

1/01/2017...........

$792,932

$4,192,932

6/30/2017...........

    753,285

4,153,285

12/31/2017...........

    713,638

4,113,638

6/30/2018...........

    673,991

4,073,991

12/31/2018...........

    634,344

4,034,344

Part 5

2017

June 30

Bond Interest Expense................................... .......................................................................

130,353

Premium on Bonds Payable...........................

39,647

      Cash.........................................................

170,000

   To record six months’ interest and
   premium amortization.

2017

Dec. 31

Bond Interest Expense...................................

130,353

Premium on Bonds Payable...........................

39,647

      Cash.........................................................

170,000

   To record six months’ interest and
   premium amortization.

Jan.   1	Cash.....................................................................	4,192,932
	Premium on Bonds Payable...........................		792,932
	Bonds Payable................................................		3,400,000
	Sold bonds on issue date at a premium.