Question

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