Question

On January 1, 2017, Boston Enterprises issues bonds that have a $3,400,000 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) 98 and (b) 102.

How 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.

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

Record the interest payment on June 30, 2017.

Record the interest payment on December 31, 2017.

Prepare the journal entry for issuance assuming the bonds are issued at (a) 98 and (b) 102.

1- Record the issue of bonds at 98.

2-  Record the issue of bonds at 102.

Answer 1

Ans 1.

(Par (maturity) Value)) x (Semi-annual Rate) = Semi-annual Cash Interest Payment

(3,400,000)*(.09*.5) = 153,000

Ans 2.

The Prepare journal entries for the following.

a)

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

Debit: Cash 3,400,000

Credit: Bonds payable 3,400,000

b)

The first interest payment on June 30, 2017. (Do not round intermediate calculations)

Debit: bond interest expense 153,000

Credit: cash 153,000

c)

The second interest payment on December 31, 2017. (Do not round intermediate calculations)

Debit: bond interest expense 153,000

Credit: cash 153,000

Ans 3.

The Prepare the journal entry for the issuance of bonds assuming.

a)

The bonds are issued at 98. (Record the issue of bonds with a par value of $3,400,000 at 98 cash).

0.98*3,400,000 = 3,332,000

3,400,000 - 3,332,000 = 68,000

Debit: Cash 3,332,000

Debit: Discount on bonds payable 68,000

Credit: Bonds payable 3,400,000

b)

The bonds are issued at 102. (Record the issue of bonds with a par value of $3,400,000 at 102).

1.02*3,400,000 = 3,468,000

3,468,000 - 3,400,000 = 68,000

Debit: Cash 3,468,000

Credit: Bonds payable 3,400,000

Credit: Premium on bonds payable 68,000