Question

Example: XYZ Corporation issues a 5 -year, 8%, $100,000 Bond. The bond is dated January 2000 and Interest is paid semiannually on January, 1 st and July 1 st.

If the bond is issued at 1.05 on January 1st, 2000. Prepare journal entries on the date of issuance and on July 1 st, 2000.

Answer 1

On the date of issuance, XYZ Corporation would record a journal entry to record the cash received from the bond issuance and increase the Bonds Payable liability account. On July 1st, 2000, XYZ Corporation would record a journal entry to recognize the interest expense and decrease cash for the interest payment.

Step-by-step explanation:

On the date of issuance, XYZ Corporation would record the following journal entry:

• Debit: Cash $100,000
• Credit: Bonds Payable $100,000

This entry records the cash received from the bond issuance and increases the Bonds Payable liability account.

On July 1st, 2000, XYZ Corporation would record the following journal entry for the semiannual interest payment:

• Debit: Interest Expense $4,000 ([$100,000 x 8%] / 2)
• Credit: Cash $4,000

This entry recognizes the interest expense incurred and decreases cash for the interest payment.