Question

On January 1, Boston Enterprises issues bonds that have a $3,400,000 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, (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) 98 and (b) 102.

Answer 1

1.Boston Enterprises will pay interest for every 6 months of :$3,400,000*9%*6/12 =$153,000
Part 2:
	Journal Entries:	Debit	Credit
2.a	Cash	$3,400,000
	Bonds Payable		$3,400,000
2.b	Interest expense	$153,000
	Cash		$153,000
2.c	Interest expense	$153,000
	Cash		$153,000
Part 3
3.a	Journal Entries:	Debit	Credit
	Cash(34,000*$98)	$3,332,000
	Discount on issue of Bond	$68,000
	Bonds Payable		$3,400,000
3.b	Cash(34,000*$102)	$3,468,000
	Bonds Payable		$3,400,000
	Premium on issue of Bond		$68,000