Question

On January 1, 2017, Boston Enterprises issues bonds that have a $2,200,000 par value, mature in 20 years, and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par.
  
1. How much interest will Boston pay (in cash) to the bondholders every six months?
2. Prepare journal entries to record (a) the issuance of bonds on January 1, 2017; (b) the first interest payment on June 30, 2017; and (c) the second interest payment on December 31, 2017.
3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 96 and (b) 104.

ow much interest will Boston pay (in cash) to the bondholders every six months?

	Par (maturity) Value Semiannual Rate Semiannual Cash Interest Payment x =

Prepare journal entries to record (a) the issuance of bonds on January 1, 2017; (b) the first interest payment on June 30, 2017; and (c) the second interest payment on December 31, 2017.

• 1

  Record the issue of bonds at par on January 1, 2017.

• 2

  Record the interest payment on June 30, 2017.

• 3

  Record the interest payment on December 31, 2017.

Prepare the journal entry for issuance assuming the bonds are issued at (a) 96 and (b) 104.

• 1

  Record the issue of bonds at 96.

• 2

  Record the issue of bonds at 104.

Answer 1

1.

Semiannual Cash Interest Payment = Par (maturity) Value x Semiannual Rate

= 2,200,000 x 4.5%

= $99,000

2.

Journal

a	January 1, 2017	Cash	2,200,000
		Bonds payable		2,200,000
b	June 30, 2017	Interest expense	99,000
		Cash		99,000
c	Dec. 31, 2017	Interest expense	99,000
		Cash		99,000

3.

a)

Par value of bonds = $2,200,000

Cash receipts from issue of bonds = $2,200,000 x 96%

= $2,112,000

Discount on bonds payable = Par value of bonds - Cash receipts from issue of bonds

= 2,200,000 - 2,112,000

= $88,000

Journal

JAN. 1, 2017	Cash	2,112,000
	Discount on bonds payable	88,000
	Bonds payable		2,200,000

b)

Par value of bonds = $2,200,000

Cash receipts from issue of bonds = $2,200,000 x 104%

= $2,288,000

Premium on bonds payable = Cash receipts from issue of bonds - Par value of bonds

= $2,288,000 - $2,200,000

= $88,000

Journal

Date	Account title	Debit	Credit
Jan. 1, 2017	Cash	2,288,000
	Bonds payable		$2,200,000
	Premium on bonds payable		88,000
	(To record issue of bonds at premium)

Boston will pay (in cash) to the bondholders every six months as interest = $99,000