# Qestion no 1 by uc86

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```									Heathrow issues \$2,500,000 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 \$3,059,990.

Required:

1.      Prepare the January 1, 2011, journal entry to record the bonds’ issuance. (Omit the "\$" sign in

Date     General Journal Debit   Credit

Jan. 1    Cash           3059990

Bonds payable                 2500000

Cash payment \$ 75,000

2(b)   For each semiannual period, compute the the straight-line premium amortization. (Round your

Amount of premium amortized              \$ 18,666

2(c)   For each semiannual period, compute the the bond interest expense. (Omit the "\$" sign in your
response.)

Bond interest expense \$ 56334
3.       Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "\$"

Total bond interest expense      \$ 1690010

4.      Prepare the first two years of an amortization table using the straight-line method. (Omit the

Semiannual

Value

1/01/2011       \$ 559,990         \$3,059,990

6/30/2011        541,324          3,041,324

12/31/2011       522,658          3022,658

6/30/2012        503,992          3003,992

12/31/2012       485,326          2,985,326

5.

Prepare the journal entries to record the first two interest payments. (Omit the "\$" sign in your
response.)

Date    General Journal Debit     Credit

June 30 Bond interest expense 56,334

Cash        75,000
Dec. 31 Bond interest expense             56,334

Cash       75,000

Explanation:

2(a)      Cash Payment = \$2,500,000 × 6% × 6/12 year = \$75,000

2(b)      Premium = \$3,059,990 – \$2,500,000 = \$559,990

Straight-line premium amortization = \$559,990/30 semiannual periods

= \$18,666

2(c)      Bond interest expense = \$75,000 – \$18,666 = \$56,334

3.

Thirty payments of \$75,000    \$      2,250,000

Par value at maturity             2,500,000

Total repayment                   4,750,000

Less amount borrowed              (3,059,990)

Total bond interest expense       \$      1,690,010

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