Problem 1
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.
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, 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.
Problem 2
Dobbs Company issues 8%, two-year bonds, on December 31, 2015, with a par value of $97,000 and semiannual interest payments.
|
Semiannual Period-End
|
Unamortized Discount
|
Carrying Value
|
|
(0)
|
12/31/2015
|
5,940
|
91,060
|
|
(1)
|
6/30/2016
|
4,455
|
92,545
|
|
(2)
|
12/31/2016
|
2,970
|
94,030
|
|
(3)
|
6/30/2017
|
1,485
|
95,515
|
|
(4)
|
12/31/2017
|
0
|
97,00
|
Use the above straight-line bond amortization table and prepare journal entries for the following.
Required:
(a) The issuance of bonds on December 31, 2015.
(b) The first through fourth interest payments on each June 30 and December 31.
(c) Record the payment to retire the bonds on December 31, 2017.
Problem 3
On January 1, 2015, Shay issues $270,000 of 9%, 15-year bonds at a price of 97.00. Six years later, on January 1, 2021, Shay retires 30% of these bonds by buying them on the open market at 105.00. All interest is accounted for and paid through December 31, 2020, the day before the purchase. The straight-line method is used to amortize any bond discount.
1. How much does the company receive when it issues the bonds on January 1, 2015?
2. What is the amount of the discount on the bonds at January 1, 2015?
3. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2015, through December 31, 2020?
4. What is the carrying (book) value of the bonds and the carrying value of the 30% soon-to-be-retired bonds as of the close of business on December 31, 2020?
5. How much did the company pay on January 1, 2021, to purchase the bonds that it retired?
6. What is the amount of the recorded gain or loss from retiring the bonds?
7. Prepare the journal entry to record the bond retirement at January 1, 2021.