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

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

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