Question

On January 1, 2016, the first day of the fiscal year, a company issues a $500,000, 5%, 10-year bond that pays semiannual interest of $12,500 ($500,000 x 5% x ½ year), receiving cash of $500,000. Journalize the entries to record (a) the issuance of the bonds, (b) the first interest payment on June 30, and (c) the payment of the principal on the maturity date of December 31. Be sure to include the year in the date for (a) and (c). Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Date Account titles and Explanation Debit Credit

Jan 1, 16 Cash $500,000

Bonds payable $500,000

(To record the issuance of the bonds)

Jun 30, 16 Interest expense $12,500

($500,000 x 5% x ½ year)

Cash $12,500

(To the first interest payment on June 30)

Dec 31, 25 Bonds payable $500,000

Cash $500,000

(To record the payment of the principal on the

maturity date of December 31)