On January 1, 2015, Boston Enterprises issues bonds that have a $3,400,000 par v

Question

On January 1, 2015, 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. How much interest will Boston pay (in cash) to the bondholders every six months? Prepare journal entries to record the issuance of bonds on January 1, 2015; the first interest payment on June 30, 2015; and the second interest payment on December 31, 2015. Prepare the journal entry for issuance assuming the bonds are issued at 98 and 102.

Explanation / Answer

1. Total interest every six months= 3400000*9%/2= $153000

2.

a. Issuance of bonds

Bank/Cash a/c Dr 3400000

To 9% bonds a/c 3400000

b. Interest payment on June 30, 2015

Interest on 9% bonds a/c Dr 153000

To Cash/Bank a/c 153000

c. Interest payment on Dec 31, 2015

Interest on 9% bonds a/c Dr 153000

To Cash/Bank a/c 153000

3. a. In case issued at 98

Cash/Bank a/c Dr 3332000

Discount on issue of bonds a/c Dr 68000

To 9% bonds 3400000

b. In case issued at 102

Bank/Cash a/c Dr 3468000

To 9% bonds a/c 3400000

To premium on bonds 68000

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