On January 1, 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.

Explanation:

The complete question should be

On January 1, 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. Prepare the journal entry for issuance assuming the bonds are issued at (a) 98 and (b) 102.

SOLUTION

A).

Given:

Bond par value = $3,400,000

To Prepare the journal entry of bond issues at 98,(this means 98% = 98/100= 0.98)

Calculate the issue of bonds with a par value of $3,400,000 at 98 cash

Bonds payable = 3,400,000 (RECORD THIS UNDER CREDIT AS BOND PAYABLE

= 0.98 × $3,400,000

= $3,332,000 cash (RECORD THIS UNDER DEBIT AS CASH)

also calculate Discount on bonds payable = Bond par value - value at 98 cash

= $3,400,000 - $3,332,000

= 68,000 (RECORD THIS IN DEBIT AS DISCOUNT ON BONDS PAYABLE)

B.)

To Prepare the journal entry of bond issues at 102 ,(this means 102% = 102/100= 1.02)

with a par value of $3,400,000 cash payable at 102 =

1.02 × 3,400,000 = 3,468,000

Amount payable on bonds payable = value at 102 cash - Bond par value

3,468,000 - 3,400,000

= 68,000 (amount payable at 102 is greater than the bond par value, so it's a premium)

Now record the following in the journal

Debit: Cash 3,468,000

Credit: Bonds payable 3,400,000

Credit: Premium on bonds payable 68,000

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