On January 1, 2011, Cannon Enterprises issues bonds that have a $2,150,000 par v
ID: 2475226 • Letter: O
Question
On January 1, 2011, Cannon Enterprises issues bonds that have a $2,150,000 par value, mature in 20 years, and pay 6% interest semiannually on June 30 and December 31. The bonds are sold at par.
How much interest will Cannon pay (in cash) to the bondholders every six months? (Do not round intermediate calculations. Omit the "$" sign in your response.)
The first interest payment on June 30, 2011. (Do not round intermediate calculations. Omit the "$" sign in your response.)
The second interest payment on December 31, 2011. (Do not round intermediate calculations. Omit the "$" sign in your response.)
On January 1, 2011, Cannon Enterprises issues bonds that have a $2,150,000 par value, mature in 20 years, and pay 6% interest semiannually on June 30 and December 31. The bonds are sold at par.
Explanation / Answer
1. Company has to pay interest semi annually:
Total Bonds par value is 2150000
Rate of interest 6%
Interest 2150000 * 6% = 129000
Semi Annual interest = 129000/2 = 64500
2. (a) Journal entry for issuance of bonds on january 1, 2011:
Date General Journal Debit Credit
Jan 1, 2011 Cash 2150000
Bonds Payable 2150000
2 (b) First interest payment on June 30, 2011
Date General Journal Debit Credit
Jun 30, 2011 Bond interest expenses 64500
Cash 64500
2 (c) Second interest payment on Dec 31, 2011
Date General Journal Debit Credit
Dec 31, 2011 Bond interest expenses 64500
Cash 64500
3. (a) Journal entry presuming bonds issued at 97
Date General Journal Debit Credit
Jan 1, 2011 Cash 2085500
Discount on bonds payable 64500
Bonds Payable 2150000
3. (b) Journal entry presuming bonds issued at 103
Date General Journal Debit Credit
Jan 1, 2011 Cash 2214500
Bonds Payable 2150000
Premium on bonds payable 64500
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