Question

On January 1, Boston Enterprises issues bonds that have a $1,600,000 par value, mature in 20 years, and pay 8% 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.

Required 1 Required 2 Required 3 How much interest will Boston pay (in cash) to the bondholders every six months? Semiannual Semiannual Cash Par (maturity) Value Interest Payment Rate х

Answer 1

1. How much interest will Boston pay (in cash) to the bondholders every six months? Par (maturity) Semiannual Cash Interest Payment $64,000 Semiannual Rate Value $1,600,000x 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 (a) Record the issue of bonds at par on January 1 4.00% Date Debit Credit General Journal 1,600,000 Cash Bonds payable January 01 1,600,000 (b) Record the interest payment on June 30. Date Debit Credit General Journal Bond interest expense 64,000 June 30 64,000 Cash (c) Record the interest payment on December 31 Debit Credit Date General Journal Bond interest expense 64,000 December 31 64,000 Cash

3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 98 and (b) 102. (a) Record the issue of bonds at 98. Debit Date General Journal Credit 1,568,000 32,000 Cash Discount on bonds payable Bonds payable January 01 1,600,000 (b) Record the issue of bonds at 102 Date Debit Credit General Journal Cash Premium on bonds payable Bonds payable 1,632,000 January 01 32,000 1,600,000