On January 1, 2017, Boston Enterprises issues bonds that have a $1,700,000 par v
ID: 2429923 • Letter: O
Question
On January 1, 2017, Boston Enterprises issues bonds that have a $1,700,000 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.
Explanation / Answer
1) Cash interest in every six month = Par Value x Semi annual interest rate = $ 17,00,000 x 9% x 6/12 = $ 76,500 2) a) Date Account title and explanation Debit Credit January 1, 2017 Cash $ 17,00,000 Bonds Payable $ 17,00,000 (To record issuance of bond) b) June 30, 2017 Interest Expense $ 76,500 Cash $ 76,500 (To record interest expense) c) December 31, 2017 Interest Expense $ 76,500 Cash $ 76,500 (To record interest expense) 3) a) Date Account title and explanation Debit Credit January 1, 2017 Cash $ 16,66,000 Discount on bonds payable $ 34,000 Bonds Payable $ 17,00,000 (To record issuance of bond) b) January 1, 2017 Cash $ 17,34,000 Bonds Payable $ 17,00,000 Premium on Bonds Payable $ 34,000 (To record issuance of bond)