Question

On January 1, Renewable Energy issues bonds that have a $52,000 par value, mature in ten years, and pay 15% interest semi annually on June 30 and December 31. 1. Prepare the journal entry for issuance assuming the bonds are issued at (a) 99 and (b) 103½. 2. How much interest does the company pay (in cash) to its bondholders every six months if the bonds are sold at par

Answer 1

Answer:

a) $520

b)$1,820

2) $3,900

Explanation:

a) For issue at 99, we have:

IWe first find the proceeds for when the bond is issued at 99, we have:

Proceeds = Asset's Par value x (issue rate /100)

= $52,000 x (99 / 100)

= $51, 480

Now, let's find the bond premium or discount:

Bond premium = Proceeds - Par value

$51, 480 - $52,000

= $520

b) For bonds issued at 103½, we have:

Let's find the proceeds when the bond is issued at 103½:

Proceeds = $52,000 x (103.½ / 100)

= $53,820

We now find the the bond premium or discount:

Bond premium = Proceeds - Par value

= $53,820 - $52,000

= $1,820

2) To find the interest paid semi-annually, we have:

Interest paid = Par value of the bonds x semi-annual interest rate.

Interest paid = $20,000 x (15%/2)

Interest paid = $52,000 x 7.5%

= 52,000 × 0.075

= $3,900

Answer 2

Answer:

A.) Journal entry:

Cash($52,000, 99) —--------$51,480

Discount on bond -————$520

Cash($52,000, 103.5) —$53,820

Bond premium -————$1,820

B. $3,900

Explanation:

GIVEN the following;

Par value of bonds = $52,000

Interest rate = 15% (semi annually)

A.) Issuance at 99

$52,000 × 0.99 = $51,480.00

Discount on bond = $520.00

b.) Issuance at 103.5

$52,000 × 1.035 = $53820

Journal entry:

Cash($52,000, 99) —--------$51,480

Discount on bond -————$520

Cash($52,000, 103.5) —$53,820

Bond premium -————$1,820

2.) INTEREST PAID IN CASH TO BOND HOLDERS EVERY 6 MONTHS ;

Interest amount = bond value × rate

Rate = 15%

Semi annual rate = 15%÷ 2 = 0.075

$52,000 × 0.075 = $3,900

Therefore, interest paid to bondholders every six months is $3,900