Question

On January 1, 2017, Boston Enterprises issues bonds that have a $1,700,000 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.

Answer 1

Solution 1:

Interest will Boston pay to the bondholders every 6 months = $1,700,000 * 9 %*6/12 = $76,500

Solution 2:

Journal Entries - Boston Enterprises
Date	Particulars	Debit	Credit
1-Jan-17	Cash Dr	$1,700,000.00
	To Bond Payable		$1,700,000.00
	(To record issue of bond at par)
30-Jun-17	Interest expense Dr	$76,500.00
	To Cash		$76,500.00
	(To record interest payment)
31-Dec-17	Interest expense Dr	$76,500.00
	To Cash		$76,500.00
	(To record interest payment)

Solution 3a:

Journal Entries - Boston Enterprises
Date	Particulars	Debit	Credit
1-Jan-17	Cash Dr	$1,666,000.00
	Discount on bond payable Dr	$34,000.00
	To Bond Payable		$1,700,000.00
	(To record issue of bond at discount)

Solution 3b:

Journal Entries - Boston Enterprises
Date	Particulars	Debit	Credit
1-Jan-17	Cash Dr	$1,734,000.00
	To Bond Payable		$1,700,000.00
	To Premium on Bond Payable		$34,000.00
	(To record issue of bond at premium)