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On January 1, 2011, Kidman Enterprises issues bonds that have a $1,700,000 par v

ID: 2362690 • Letter: O

Question

On January 1, 2011, Kidman 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 Kidman pay (in cash) to the bondholders every six months? 2. Prepare journal entries to record (a) the issuance of bonds on January 1, 2011; (b) the first interest payment on June 30, 2011; and (c) the second interest payment on December 31, 2011. 3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 98 and (b) 102.

Explanation / Answer

On January 1, 2011, Kidman Enterprises issues bonds that have a $1,700,000 par value, mature in 20 years, and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par. 1. How much interest will Kidman pay (in cash) to the bondholders every six months? (Do not round intermediate calculations. Omit the "$" sign in your response.) Semiannual cash interest payment $76,500 ($1,700,000 x 9% x 6/12) 2. Prepare journal entries for the following. (a) The issuance of bonds on January 1, 2011. (Omit the "$" sign in your response.) Jan. 1, 2011 Dr Cash $1,700,000 Cr Bonds payable $1,700,000 (always at par) (b) The first interest payment on June 30, 2011. Dr Interest expense $76,500 Cr Cash $76,500 (c) The second interest payment on December 31, 2011. Dr Interest expense $76,500 Cr Cash $76,500 3. Prepare the journal entry for issuance of bonds assuming. (a) The bonds are issued at 98. Jan. 1, 2011 Dr Cash $1,666,000 ($1,700,000 x 0.98) Dr Discount on bonds payable 34,000 Cr Bonds payable $1,700,000 (always at par) (b) The bonds are issued at 102. Jan. 1, 2011 Dr Cash $1,734,000 (1,700,000 x 1.02) Cr Bonds payable $1,700,000 (always at par) Cr Premium on bonds payable $34,000

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