Question

Exercise 10-3 Recording bond issuance and interest LO P1 On January 1, Boston Enterprises issues bonds that have a $1,650,000 par value, mature in 20 years, and pay 10% 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) 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 2 >

Answer 1

1.
Calculation of cash paid to bondholders for interest every six months
Semiannual cash interest payment	Par maturity value*Semi-annual rate
Semiannual cash interest payment	1650000*5%
Semiannual cash interest payment	$82,500
Thus, cash paid every six months would be $82,500.
2.
Journal entry to record issuance of bonds
Date	General Journal	Debit	Credit
1-Jan	Cash	$1,650,000
	Bonds payable		$1,650,000
	(To record issuance of bonds)
Journal entry to record first interest payment on June 30
Date	General Journal	Debit	Credit
30-Jun	Interest expense	$82,500
	Cash		$82,500
	(To record first interest payment)
Journal entry to record second interest payment on December 31
Date	General Journal	Debit	Credit
30-Jun	Interest expense	$82,500
	Cash		$82,500
	(To record second interest payment)
3.
Journal entry to record issuance of bonds at 95
Date	General Journal	Debit	Credit
1-Jan	Cash (1650000*95%)	$1,567,500
	Discount on bonds payable (1650000*5%)	$82,500
	Bonds payable		$1,650,000
	(To record issuance of bonds)
Journal entry to record issuance of bonds at 105
Date	General Journal	Debit	Credit
1-Jan	Cash (1650000*105%)	$1,732,500
	Premium on bonds payable (1650000*5%)		$82,500
	Bonds payable		$1,650,000
	(To record issuance of bonds)