Answer:
bond issuance:
Dr cash $600,000
Cr bonds payable $600,000
first semiannual interest payment:
Dr interest expense $21000
Cr cash $21000
Retirement of $200,00:
Dr bonds payable($200,000/$600,000*$200,000)$200,000
Dr loss on bond retirement $2000
cr cash($200,000*101%) $202,000
Explanation:
The issuance of the bond at par means that the cash realized is exactly the face value of $600,000,hence cash is debited with $600,000 while bonds payable is credited with $600,000.
Bal b/f interest expense coupon interest bal c/f
$600,000 $21000 $21000 $600,000
A bond issued at par implies that coupon rate equals yield to maturity,hence interest expense is the same as the coupon payment as shown below:
interest expense=coupon interest=$600,000*7%*6/12=$21000
Bal c/f=bal b/f+interest-coupon interest
