Question

On January 1, 2018, White Water issues $560,000 of 6% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Required: Assuming the market interest rate on the issue date is 6%, the bonds will issue at $560,000. Record the bond issue on January 1, 2018, and the first two semiannual interest payments on June 30, 2018, and December 31, 2018

Answer 1

Answer:

cash            560,000 debit

 bonds payable        560,000 credit

--to record issuance of the bonds--

interest expense 16,800 debit

             cash                    16,800 credit

--to record interest payment on bonds--

interest expense 16,800 debit

             cash                    16,800 credit

--to record interest payment on bonds--

Explanation:

As the face value equals the market value (bond rate equals the market rate)

The company will not recognize any discount or premium.

the interest expense will match the coupon payment.

the rate is 6% annual so we diviede by two to get teh semiannual rate:

0.06 / 2 = 0.03

cash proceeds / interst expense

560,000 x 0.03 = 16,800