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    Bond amortization under straight-line method

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    Straight-line amortization of both
    bond discount and bond premium
    P1 P2 P3
    Heathrow issues $2,000,000 of 6%, 15-year bonds dated January 1, 2004, 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, 2004, 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 14.7 using the straight-line method.
    5. Prepare the journal entries to record the first two interest payments.
    6. Assume that the bonds are issued at a price of $2,447,990. Repeat parts 1 through 5.

    MUST BE DONE ON AN EXCEL SPREAD SHEET THATS ATTACHED

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    https://brainmass.com/business/bonds-payable/bond-amortization-under-straight-line-method-181002

    Attachments

    Solution Preview

    Please see the attached file
    HEATHROW
    General Journal
    Part 1.
    Trans.
    Date Account Titles no. Debit Credit
    2004
    Jan 1 Cash 1,728,224
    Discount on Bonds Payable 271,776
    Bonds Payable 2,000,000

    Part 2.

    Cash payment $60,000
    Straight-line discount amortization 9,059 Over the life of the bond
    Bond interest expense 69,059

    Part 3.

    Thirty payments of $60,000 $1,800,000
    Par value at maturity 2,000,000
    Total repaid $3,800,000
    Less amount borrowed 1,728,224
    Total bond interest expense $2,071,776 «- Correct!

    or:

    Thirty payments of $60,000 $1,800,000
    Plus discount 271,776
    Total bond interest expense $2,071,776 «- Correct!

    Part ...

    Solution Summary

    The solution explains how to calcualate the amortization under discount and premium and the related journal entries

    $2.19

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