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On January 1, Renewable Energy issues bonds that have a $20,000 par value, mature in eight years, and pay 12% interest semiannually on June 30 and December 31. Prepare the journal entry for issuance assuming the bonds are issued at (a) 99 and (b) 103½. How much interest does the company pay (in cash) to its bondholders every six months if the bonds are sold at par?
On January 1, Renewable Energy issues bonds that have a $20,000 par value, mature in eight years, and pay 12% interest semiannually on June 30 and December 31. Prepare the journal entry for issuance assuming the bonds are issued at (a) 99 and (b) 103½. How much interest does the company pay (in cash) to its bondholders every six months if the bonds are sold at par?
Final answer:When Renewable Energy issues bonds at a $20,000 par value, the semiannual interest payment is $1,200. Bonds issued at 99 or 103.5 would require different cash amounts and journal entries but maintain the same interest payment.Explanation:To address the question on bond issuance and interest payments: when Renewable Energy issues bonds at a par value of $20,000 with a maturity of eight years at 12% annual interest paid semiannually, the interest payment every six months would be $1,200 (which is $20,000 × 12% ÷ 2).For part (a) issuance at 99, the journal entry on issuance would be:Debit Cash $19,800 (99% of $20,000)Credit Bonds Payable $20,000For part (b) issuance at 103.5, the journal entry would be:Debit Cash $20,700 (103.5% of $20,000)Credit Bonds Payable $20,000Credit Premium on Bonds Payable $700If the bonds were sold at par, the cash interest payment remains the same, which is $1,200 every six months....