Question

On January 1, 2021, a company issues $750,000 of 8% bonds, due in ten years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 8%, the bonds will issue at $750,000. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Answer:

January 1 2021  Cash              750000 Dr

                            Bonds Payable    750000 Cr

June 30 2021  Interest Expense  30000 Dr

                             Cash                     30000 Cr

December 31 2021  Interest expense  30000 Dr

                                    Cash                      30000 Cr

Explanation:

The bonds are issued at par so whole 750000 is received in cash on issue date.

The annual interest on bonds is 750000 * 0.08 = 60000

This is paid in equal installments semi annually so semi annual payment is 60000 / 2 = 30000