Question

On January 1, 2021, Splash City issues $460,000 of 8% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Required: Assuming the market interest rate on the issue date is 8%, the bonds will issue at $460,000. 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:

The journal entry is shown below:

Explanation:

Journal Entry.

Jan.1  Cash A/c Dr    $460,000

           To Bonds payable A/c    $460,000

(Bond issue is being recorded)  

Jun.30  Interest Expense A/c Dr    $18,400

           To Cash A/c    $18,400  ($460,000×4% = $18,400)

(Interest is being recorded)

Dec.31  Interest Expense A/c Dr    $18,400

           To Cash A/c    $18,400  ($460,000×4% = $18,400)

(Interest is being recorded)    

Answer 2

The appropriate journal entries to  record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021 are:

Splash City Journal entries

January 01, 2021

Debit Cash $460,000  

Credit Bonds payable $460,000  

(To record Issuance of bonds )  

June 30, 2021

Debit Bond interest expense $18,400  

Credit Cash  $18,400

(8%/2×$460,000 )

(To record Interest on bond paid)

 

December 31, 2021

Debit Bond interest expense $18,400  

Credit Cash  $18,400  

(To record Interest on bond paid)

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