Question

• First to post: complete part 1 and part 2(a)
• Second to post: complete part 2(b) and part 2(c)
• Third to post: complete part 3(a)
• Fourth to post: complete part 3(b)

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) Interest will Boston pay in cash) to the bondholders every six months: $153,000 Semiannual cash interest payment = ($3,400,000 * 9% *1/2) 2) Credit a) Journal Entries: Date General Journal Debit January 1 Cash $3,400,000 Bonds Payable (To record the issuance of the bonds at par) $3,400,000 b) June 30 $153,000 Interest expense Cash (To record the payment of interest) $153,000 c) $153,000 December 31 Interest expense Cash (To record the payment of interest) $153,000 3) Date a) Journal Entry: General Journal Debit Credit January 1 Cash ($3,400.000 * 0.98) $3,332,000 Discount on bonds payable $68,000 Bonds Payable $3.400.000 (To record the issuance of the bonds at 98) b) January 1 Cash ($3,400.000 * 1.02) $3,468,000 Premium on bonds payable $68,000 Bonds Payable $3,400,000 (To record the issuance of the bonds at 102)