On January 1, 2015, Boston Enterprises issues bonds that have a $1,300,000 par value, mature in 20 years, and pay 7% interest semiannually on June 30 and December 31. The bonds are sold at par.
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| 1. |
How much interest will Boston pay (in cash) to the bondholders every six months?
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| 2. | Prepare journal entries to record (a) the issuance of bonds on January 1, 2015; (b) the first interest payment on June 30, 2015; and (c) the second interest payment on December 31, 2015. |
| 3. | Prepare the journal entry for issuance assuming the bonds are issued at (a) 96 and (b) 104. |
| 1. |
| Semiannual cash interest payment = $1,300,000 × 7% × 1/2 = $45,500 |
| 3. |
| (a) Sold bonds at 96 ($1,300,000 × 0.96) = $1,248,000 |
| (b) Sold bonds at 104 ($1,300,000 × 1.04) = $1,352,000 |
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