Question

A company issued 7%, 15-year bonds with a par value of $510,000 that pay interest semiannually. The market rate on the date of issuance was 7%. The journal entry to record each semiannual interest payment is: ________

a) Debit Bond Interest Expense $17,850, credit Cash $17,850
b) Debit Bond Interest Expense $35,700: credit Cash $35,700
c) Debit Bond Interest Payable $34,000, credit Cash $34,000.

Answer 1

Answer: A. Debit Bond Interest Expense $17,850, credit Cash $17,850

Step-by-step explanation:

Since the company issued 7%, 15-year bonds with a par value of $510,000 that pay interest semiannually with a market rate of 7%, then the journal entry to record each semiannual interest payment will be:

Debit Bond Interest Expense $17,850

Credit Cash $17,850

(To record semi annual interest payment)

Note that bond interest expense was calculated as:

= $510,000 × 7% × 6/12

= $510,000 × 0.07 × 0.5

= $17850