Answer:
1. How much interest will Boston pay (in cash) to the bondholders every six months?
coupon payment = $1,850,000 x 7% x 1/2 = $64,750
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.
January 1, bonds issued at par
Dr Cash 1,850,000
Cr Bonds payable 1,850,000
June 30, first coupon payment
Dr Interest expense 64,750
Cr Cash 64,750
December 31, second coupon payment
Dr Interest expense 64,750
Cr Cash 64,750
3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 95 and (b) 105.
a)
Dr Cash 1,757,500
Dr Discount on bonds payable 92,500
Cr Bonds payable 1,850,000
b)
Dr Cash 1,942,500
Cr Bonds payable 1,850,000
Cr Premium on bonds payable 92,500