On January 1, 2017, Boston Enterprises issues bonds that have a $1,750,000 par v

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.

Explanation / Answer

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

2) Journal entry :

3) 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

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