Question

On January 1, Boston Enterprises issues bonds that have a $1,500,000 par value, mature in 20 years, and pay 6% 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) 96 and (b) 104.

Answer 1

A) Interest payable every six months

= 1,500,000*6%*6/12

= 45,000

B)

A	Cash	1,500,000
	Bonds payable		1,500,000
B	Bond interest expense	45,000
	Cash		45,000
C	Bond interest expense	45,000
	Cash		45,000

C)

A	Cash (1,500,000*96%)	1,440,000
	Discount on bonds payable	60,000
	Bonds payable		1,500,000
B	Cash (1,500,000*104%)	1,560,000
	Premium on Bonds Payable		60,000
	Bonds payable		1,500,000