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9 December, 18:51

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.

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  1. 9 December, 20:46
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    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
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