On January 1, 2013, Boston Enterprises issues bonds that have a $3,400,000 par value

On January 1, 2013, Boston Enterprises issues bonds that have a $3,400,000 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 for the following.

(a) The issuance of bonds on January 1, 2013.
(b) The first interest payment on June 30, 2013.
(c) The second interest payment on December 31, 2013.
3. Prepare the journal entry for issuance of bonds assuming.

(a) The bonds are issued at 98.
(b) The bonds are issued at 102.

1. How much interest will Boston pay (in cash) to the bondholders every six months?
$3,400,000 x 4.5% = $153,000
Semiannual cash interest payment = $3,400,000 × 9% × 1/2 = $153,000
2. Prepare journal entries for the following.
(a) The issuance of bonds on January 1, 2013.
Cash Debit 3,400,000
Bond payable Credit 3,400,000
(b) The first interest payment on June 30, 2013.
Bond interest expense Debit 153,000
Cash Credit $153,000

(c) The second interest payment on December 31, 2013.
Bond interest expense debit 153,000
Cash credit 153,000
3. Prepare the journal entry for issuance of bonds assuming.
(a) The bonds are issued at 98.
Cash Debit $3,332,000 ($3,400,000 × 0.98)
Discount on bonds payable Debit 68,000
Bonds payable Credit 3,400,000

(b) The bonds are issued at 102.
Cash Debit 3,468,000 ($3,400,000 × 1.02)
Premium on bonds payable Credit 68,000
Bonds payable Credit 3,400,000