Question

Round dollar amounts to the nearest whole dollar. Assume no reversing entries are used issuance On January 1, 2017, 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, 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

Ans:

Ans:

1.Cash Interest Paid

Maturity value	*	Semi Annual rate			Semi Annual cash interest paid
3,400,000	*	0.09 /2 =	4.50%	=	153000

2) Journal entry
Date	Account and Explanation	Debit	Credit
Jan-01	Cash	3,400,000
	Bonds payable		3,400,000
	(To record bond issue)
Jun-30	Interest expense	153000
	Cash		153000
	(To record interest paid)
Dec-31	Interest expense	153000
	Cash		153000
	(to record interest paid)

3) Journal entry
Date	Account and Explanation	Debit	Credit
Jan-01	Cash ( 3400000 * 98%)	3332000
	Discount on bonds payable	68,000
	Bonds payable		3,400,000
Jan-01	Cash ( 3400000 * 102%)	3468000
	Bonds payable		3,400,000
	Premium on bonds payable		68,000