Question

On January 1, 2017, Boston Enterprises issues bonds that have a $1,750,000 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, 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) 97 and (b) 103.

Answer 1

1) Interest pay every six month = 1750000*10%*6/12 = 87500

2) Journal entry :

Date	accounts & explanation	debit	credit
jan 1,2017	Cash	1750000
	Bonds payable		1750000
June 30,2017	Interest expense	87500
	Cash		87500
Dec 31,2017	Interest expense	87500
	Cash		87500

3) journal entry :

No.	accounts & explanation	debit	credit
A)	Cash	1697500
	Discount on bonds payable	52500
	Bonds payable		1750000
b)	Cash	1802500
	Bonds payable		1750000
	Premium on bonds payable		52500