Question

On January 1, Boston Enterprises issues bonds that have a $1,800,000 par value, mature in 20 years, and pay 8% interest semiannually on June 30 and December 31. The bonds are sold at par.

1a. How much interest will Boston pay (in cash) to the bondholders every six months?
1b. Prepare journal entries to record (a) the issuance of bonds on January 1, (b) the first interest payment on June 30, and (c) the second interest payment on December 31.
1c. Prepare the journal entry for issuance assuming the bonds are issued at (a) 96 and (b) 104.

1a:

Par (maturity) value	x	semiannual rate	=	semiannual cash interest payment
	x		=

1b.

Date	General Journal	Debit	Credit
January 01
June 30
December 31

1c.

Date	General Journal	Debit	Credit
Jan 01
Jan 01

Answer 1

1a)
Par (maturity) Value		Semi Annual Rate		Semiannual Cash Interest Payment
$1,800,000	x	(8 / 2) =   4%	=	$72,000

1b)
Date	Accounts titles and Explanation	Debit (in $)	Credit (in $)
Jan-01	Cash	$1,800,000
	Bonds payable		$1,800,000
	(To record the issuance of bonds)
Jun-30	Interest expense	$72,000
	Cash		$72,000
	(To record the first interest payment on June 30)
Dec-31	Interest expense	$72,000
	Cash		$72,000
	(To record the second interest payment on Dec . 31 )
1c)
Date	Accounts titles and Explanation	Debit (in $)	Credit (in $)
Jan-01	Cash ($1,800,000 x 96%)	$1,728,000
	Discount on bonds payable - Bal. Fig.	$72,000
	Bonds payable		$1,800,000
	(To record the issue of bonds)
Jan-01	Cash ($1,800,000 x 104%)	$1,872,000
	Premium on bonds payable		$72,000
	Bonds payable		$1,800,000
	(To record the issue of bonds)