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17 August, 16:21

Brussels Enterprises issues bonds at par dated January 1, 2019, that have a $2,100,000 par value, mature in four years, and pay 7% interest semiannually on June 30 and December 31. 1. Record the entry for the issuance of bonds for cash on January 1. 2. Record the entry for the first semiannual interest payment and the second semiannual interest payment. 3. Record the entry for the maturity of the bonds on December 31, 2022 (assume semiannual interest is already recorded)

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  1. 17 August, 18:48
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    1.

    1 Jan 2019

    Cash 2100000 Dr

    Bonds Payable 2100000 Cr

    2.

    30 June 2019

    Interest expense 73500 Dr

    Cash 73500 Cr

    31 Dec 2019

    Interest expense 73500 Dr

    Cash 73500 Cr

    3.

    31 Dec 2022

    Bonds Payable 2100000 Dr

    Cash 2100000 Cr

    Explanation:

    1.

    The bonds are assumed to be issued at par value as the market interest rate is not given and is assumed to be the same as the interest rate on bonds of 7%. The issuance of bonds on par is recorded as a debit to the cash received against the bonds and a credit to the bonds payable account.

    2.

    The semi annual interest payment on bond is,

    Bond interest-semi annual = 2100000 * 0.07 * 6/12 = 73500

    The interest rate given is the annual interest rate of 7%. That is why we multiply it with 6/12 to get the semi annual interest.

    3.

    The disposal of bonds will be a reversal of the issuance entry. The bonds payable will be debited by the par value amount and the cash will be credited.
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