Question

On January 1, Boston Enterprises issues bonds that have a $1,350,000 par value, mature in 20 years, and pay 8% 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, (b) the first interest payment on June 30, and (c) the second interest payment on December 31. 3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 97 and (b) 103.

Answer 1

B2 X for 1 ДА В с face value of bonds payable semiannual interest rate interest paid to bondholders every six months $ 1,350,000 4% $ 54,000 no. date account titles and explanation debit credit 2 (a) 01-Jan $ 1,350,000 cash bonds payable (to record issue of bonds payable at par) $ 1,350,000 2(b) 30-Jun $ 54,000 interest expense cash (to record interest payment) $ 54,000 2 (0) $ 54,000 31-Dec interest expense cash (to record interest payment) $ 54,000 3 (a) 01-Jan $ 1,309,500 $ 40,500 cash discount on bonds payable bonds payable (to record issue of bonds payable at discount) $ 1,350,000 3(b) 01-Jan $ 1,390,500 cash bonds payable premium on bonds payable (to record issue of bonds payable at discount) $ 1,350,000 $ 40,500

for formulas and calculations, refer to the image below -

в с face value of bonds payable semiannual interest rate interest paid to bondholders every six months 1350000 =8%/2 =E2 E3 = no.date account titles and explanation debit credit 1350000 2 (a) 43466 cash bonds payable (to record issue of bonds payable at par) =E8 -F4 2 (b) 43646 interest expense cash (to record interest payment) =E12 2 (c) 43830 interest expense cash (to record interest payment) =E16 =1350000*0.97 =F22-E20 3 (a) 43466 cash discount on bonds payable bonds payable (to record issue of bonds payable at discount) =1350000 =1350000*1.03 3(b) 43466 cash bonds payable premium on bonds payable (to record issue of bonds payable at discount) =1350000 =E25-F26

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