Question

On January 1, 2013, Jones Inc. issued a $100,000 face value bond for proceeds of $97,654. On June 30, 2013, Jones sent checks to the bondholders for the first coupon payment on the bond. Which of the following items would be increased by the coupon payment transaction?
a. Interest Expenseb. Bonds Payablec. Cash from Operating Activitiesd. Cash from Financing Activitiese. Cash from Investing Activities

Answer 1

Answer:

a. Interest Expense

Explanation:

Only the Interest Expense would be increased by the coupon payment transaction.

Coupon payment includes interest payment and repayment of the Principle or Capital amount.

The entry for coupon payment is :'

Debit : Interest expense

Debit : Bond Payable

Credit : Cash

While the Cash- Asset and the Bond Payable- Liability are decreasing, only the Interest expense is increasing.