Question

If the market interest rate is 8%, the bonds will issue at $2,400,000. 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

Please refer to detail explanation below to see the accounting treatment at date of issuance of bond and on date of semi-annual payment of interest.

Step-by-step explanation:

As information is missing it is assumed that record mean book entry and coupon rate is equal to market Rate i.e. 8%.

On the date of issuance (Jan-01,2018) the company will pass following entry i.e.

Debit Cash Asset 2400000$

Credit Bond Liability 2400000$

On the date of Interest payment semiannual (June-30,2018) the company will pass following entry i.e.

Debit Interest expense 96000$

Credit Cash Asset 96000$

On the date of Interest payment semiannual (December-31,2018) the company will pass following entry i.e.

Debit Interest expense 96000$

Credit Cash Asset 96000$

(Interest calculation 2400000*8/2= 96000) Semi annually