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# Journal Entries - Bonds

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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.

#### Solution Preview

Part 1
2004
Jan. 1 Cash 1,728,224
Discount on Bonds Payable 271,776
Bonds Payable 2,000,000
Sold bonds on stated issue date.

Part 2
[Note: The semiannual amounts for (a), (b), and (c) below are the same throughout the bonds' life because this company uses straight-line amortization.]

(a) Cash Payment = \$2,000,000 x 6% x 6/12 year = \$60,000

(b) Discount = \$2,000,000 - \$1,728,224 = \$271,776

Straight-line discount amortization= \$271,776 / 30 semiannual periods
= \$9,059*
*rounded

(c) Bond interest expense = \$60,000 + \$9,059 = \$69,059

Part 3

Thirty payments of \$60,000 \$1,800,000
Par value at maturity ...

#### Solution Summary

The solution explains the accounting relating to bonds

\$2.49