Business, 26.11.2020 23:10 Tyrant4life

On January 1, 2017, 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. Required:
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.
3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 98 and (b) 102.

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Answer from: GreenHerbz206

1. Par Value = $3,400,000

Semi-annual coupon rate = 9%/2 = 4.5%

Semi annual coupon = Semiannual rate * Par value = 4.50$*$3,400,000

= $153,000

So, the interest that Boston will pay (in cash) to the bondholders every six months is $153,000

2. Date Account Titles and Explanation Debit Credit

Jan 1, 2017 Cash $3,400,000

Bonds payable $3,400,000

(To record the issuance of bonds)

Jun 30, 2017 Interest expenses $153,000

Cash $153,000

(To record the first interest payment)

Dec 31, 2017 Interest expenses $153,000

Cash $153,000

(To record the second interest payment)

3. S/n Account Titles Debit Credit

a Cash (3,400,000*98%) $3,332,000

Discount on Bonds payable $68,000

Bonds payable $3,400,000

b Cash (3,400,000*102%) $3,468,000

Premium on bonds payable $68,000

Bonds payable $3,400,000

Answer from: Quest

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Answer from: Quest

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