On January 1, Boston Enterprises issues bonds that have a $1,450,000 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) 95 and (b) 105.

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

Par value x semi-annual rate = semiannual cash interest.

Semi-annual rate = 9/2 = 4.5%

1,450,000 x 4.5% = 65,250.

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.

Date Account Title Dr Cr

Jan 01 Cash 1,450,000

Bonds payable 1,450,000

Jun 30 Bond interest expense 65,250

Cash 65,250

Dec 31 Bond interest expense 65,250

Cash 65,250

3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 95 and (b) 105.

(a) 95

1,450,000 * 0.95 = 1377500

Discount on bonds = 1,450,000 - 1377500 = 72500

Date Account Title Dr Cr

Jan 01 Cash 1377500

Discount on bonds payable 72500

Bonds payable 1,450,000

(b) 105

1,450,000 * 1.05 = 1522500

Premium on bonds = 1522500 - 1,450,000 = 72500

Date Account Title Dr Cr

Jan 01 Cash 1522500

Premium on bonds payable 72500

Bonds payable 1,450,000