Question

On January 1, Boston Enterprises issues bonds that have a $1,650,000 par value, mature in 20 years, and pay 10% 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) 95 and (b) 105. ces Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 How much interest will Boston pay (in cash) to the bondholders every six months? Par (maturity) Value Semiannual Semiannual Cash Interest Payment Rate

Answer 1

1) Interest boston will pay is = (Par value * Semi annual rate of interest) Interest boston will pay is = (1650000*10%*(6/12)) Interest boston will pay is = $ 82,500/. Credits 2) Journal entries :- Date Accounts Title & Explanation 01-Jan Cash To Bonds Payable (Entry for issue of bonds payable at par) Debits 1,650,000 1,650,000 30-Jun 82,500 Interest expense To Cash (Entry for first semi-annual interest payment) 82,500 31-Dec 82,500 Interest expense To Cash (Entry for first semi-annual interest payment) 82,500 Debit $ Credits 3) Journal entries :- Date Accounts Title & Explanation If bonds are issued at 95 01-Jan Cash (1650000*95%) Discount on Bonds Payable To Bonds Payable (Entry for issue of bonds payable at below par value) 1,567,500 82,500 1,650,000 1,732,500 If bonds are issued at 105 01-Jan Cash (1650000*105%) To Bonds Payable To Premium on Bonds Payable (1650000*5%) (Entry for issue of bonds payable at above par value) 1,650,000 82,500