Question

Item1 eBook Check my work Check My Work button is now disabledItem 1 Item 1 On January 1, 2017, 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, 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		Semiannual rate		Semiannual cash interest payment
$1,600,000	*	4%[ 8% x 6/12 ]	=	$64,000

2.

(a) Issuance of bonds on January 1,2017:-

Date	General Journal	Debit	Credit
Jan 01, 2017	Cash	$1,600,000
	Bonds payable		$1,600,000

(b) First interest payment on June 30,2017:-

Date	General Journal	Debit	Credit
June 30, 2017	Bonds interest expense	$64,000
	Cash		$64,000

(c) The second interest payment on December 31,2017:-

Date	General Journal	Debit	Credit
Dec 31, 2017	Bonds interest expense	$64,000
	Cash		$64,000

3.

(a) Bonds issued at 98:-

Date	General Journal	Debit	Credit
Jan 01, 2017	Cash (16,000bonds x $98)	$1,568,000
	Discount of bonds payable (bal.fig)	$32,000
	Bonds payable		1,600,000

(b) Bonds issued at 102:

Date	General Journal	Debit	Credit
Jan 01, 2017	Cash (16,000bonds x 102)	$1,632,000
	Premium on bonds payable		$32,000
	Bonds payable		1,600,000