Final answer:
The correct journal entry to record bond interest payments when there is no premium or discount is to debit Interest Expense and credit Cash. This reflects the routine expense of interest payments by the company and the reduction in cash due to the payment made to bondholders.
Step-by-step explanation:
If there is neither a premium nor discount present, the journal entry to record bond interest payments is Debit Interest Expense, Credit Cash. When a company issues bonds, it borrows money from investors and agrees to pay interest on that debt. This interest is called the coupon. The interest payment is a regular expense for the company, and the accounting entry to reflect this expense is to debit Interest Expense for the amount of interest payable, and credit Cash because the payment reduces the company's cash balance.
The interest rate at which bonds are issued initially, for example, 5% on a $1,000 bond, reflects the cost of borrowing for the company and the return for the investor. If market interest rates change, the attractiveness of the bond to new investors can fluctuate, but this does not affect the interest payments to existing bondholders, as the coupon rate is fixed. Thus, regardless of market interest rate movements, the interest payment journal entry remains the same.