Question

Madrid Company plans to issue 9% bonds with a par value of $5,300,000. The company sells $4,770,000 of the bonds at par on January 1. The remaining $530,000 sells at par on July 1. The bonds pay interest semiannually on June 30 and December 31. 1. Record the entry for the first interest payment on June 30. 2. Record the entry for the July 1 cash sale of bonds.

Answer 1

Answer and Explanation:

The journal entry are as follows

1. Interest expense $214,650

       To Cash $214,650

(Being the first interest payment is recorded)

The computation is shown below

= $4,770,000 × 9%  × 6 months ÷ 12 months

= $214,650

For recording this we debited the interest expense as it increased the expenses while on the other hand the cash is paid which reduced the cash balance so it is credited

2. Cash $530,000

      To Bond payable $530,000

(Being the cash sale of bond is recorded)

For recording this we debited the cash as cash is received that increased the cash balance and at the same time we credited the bond payable