Question

Exercise 10-1 Recording bond issuance and interest LO P1 On January 1, 2017, Boston Enterprises Issues bonds that have a $1,450,000 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) 95 and (b) 105. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 How much interest will Boston pay (in cash) to the bondholders every six months? Par (maturity) Value Semiannual Rate Semiannual Cash Interest Payment Required 1 Required 2 >

Answer 1

1.

Semi annual cash interest payment = Par value of bonds x Semi annual interest rate

= 1,450,000 x 4.5%

= $65,250

2.

Journal

January 1, 2017	Cash	1,450,000
	Bonds payable		1,450,000
June 30, 2017	Interest expense	65,250
	Cash		65,250
December 31, 2017	Interest expense	65,250
	Cash		65,250

3.

a)	Cash	1,377,500
	Discount on bonds payable	72,500
	Bonds payable		1,450,000
b)	Cash	1,522,500
	Bonds payable		1,450,000
	Premium on bonds payable		72,500

a)

Issue price of bonds = 1,450,000 x 95%

= $1,377,500

Par value of bonds = $1,450,000

Discount on bonds payable = Par value of bonds - Issue price of bonds

= 1,450,000 - 1,377,000

= $72,500

b)

Issue price of bonds = 1,450,000 x 105%

= $1,522,500

Par value of bonds = $1,450,000

Premium on bonds payable =  Issue price of bonds - Par value of bonds

= 1,522,500 -1,450,000

= $72,500

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