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# Bond amortization under straight-line method

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Straight-line amortization of both
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

#### Solution Preview

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