Question

On January 1, 2017, Boston Enterprises issues bonds that have a $1,200,000 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) 98 and (b) 102

Answer 1

1
Par (maturity) value	X	Semiannual rate	=	Semiannual cash interest payment
1200000	X	4.50%	=	54000
2
Jan 01,2017	Cash	1200000
	Bonds payable		1200000
June 30,2017	Bond interest expense	54000
	Cash		54000
Dec 31,2017	Bond interest expense	54000
	Cash		54000
3
Jan 01,2017	Cash	1176000		=1200000*0.98
	Discount on Bonds payable	24000
	Bonds payable		1200000
Jan 01,2017	Cash	1224000		=1200000*1.02
	Bonds payable		1200000
	Premium on Bonds payable		24000