Question

On January 1, Boston Enterprises issues bonds that have a $2,200,000 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, (b) the first interest payment on June 30, and (c) the second interest payment on December 31.
3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 96 and (b) 104.
Complete this question by entering your answers in the tabs below.
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How much interest will Boston pay (in cash) to the bondholders every six months?
Par (maturity) Value Semiannual Rate Semiannual Cash Interest Payment
$ 2,200,000 4.5% $ 99,000
< Required 1 Required 2 >

Answer 1

1. How much interest will Boston pay (in cash) to the bondholders every six months?

semiannual coupon = $2,200,000 x 9% x 1/2 = $99,000

2. Prepare journal entries to record (a) the issuance of bonds on January 1, (b) the first interest payment on June 30, and (c) the second interest payment on December 31.

a) January 1, 202x, bonds issued at par

Dr Cash 2,200,000

Cr Bonds payable 2,200,000

b) June 30, 202x, first coupon payment

Dr Interest expense 99,000

Cr Cash 99,000

c) December 31, 202x, second coupon payment

Dr Interest expense 99,000

Cr Cash 99,000

3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 96 and (b) 104.

a) January 1, 202x, bonds issued at 96

Dr Cash 2,112,000

Dr Discount on bonds payable 88,000

Cr Bonds payable 2,200,000

b) January 1, 202x, bonds issued at 104

Dr Cash 2,288,000

Cr Bonds payable 2,200,000

Cr Premium on bonds payable 88,000