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Qestion no 1

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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
your response.)



Date     General Journal Debit   Credit

Jan. 1    Cash           3059990

             Premium on bonds payable 55990

             Bonds payable                 2500000



2(a)     For each semiannual period, compute the cash payment. (Omit the "$" sign in your response.)



 Cash payment $ 75,000



2(b)   For each semiannual period, compute the the straight-line premium amortization. (Round your
answer to the nearest dollar amount. Omit the "$" sign in your response.)



 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 "$"
sign in your response.)



 Total bond interest expense      $ 1690010



4.      Prepare the first two years of an amortization table using the straight-line method. (Omit the
"$" sign in your response.)



Semiannual

Period-End      Unamortized Premium Carrying

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

         Premium on bonds payable 18,666

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

            Premium on bonds payable 18,666

               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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