Answer:
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
