Heathrow issues $2,000,000 of 6%, 15-year bonds dated January 1, 2011, that pay

Question

Heathrow issues $2,000,000 of 6%, 15-year bonds dated January 1, 2011, that pay interest semiannually

on June 30 and December 31. The bonds are issued at a price of $1,728,224.

Required

1. Prepare the January 1, 2011, journal entry to record the bonds’ issuance.

2. For each semiannual period, compute (a) the cash payment, (b) 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 10.7 using the straight-line method.

5. Prepare the journal entries to record the first two interest payments.

Explanation / Answer

Date . . . Expense Discount . Cash . . . .Bonds . . .Discount . Carrying
. . . . . . . . . . . . . . . . Amor. .Payment. .Payable . . .Balance. . .Value
1/01/2011 . . . . . . . . . . . . . . . . . . . . 2,000,000 . 271,776 . 1,728,224
6/30/2011 . .69,059 . 9,059 . 60,000 . 2,000,000 . 262,717 . 1,737,283
12/31/2011 .69,059 . 9,059 . 60,000 . 2,000,000 . 253,658 . 1,746,342
6/30/2012 . .69,059 . 9,059 . 60,000 . 2,000,000 . 244,599 . 1,755,401
12/31/2012 .69,059 . 9,059 . 60,000 . 2,000,000 . 235,540 . 1,764,460

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.