Question

On January 1, 2021, Twister Enterprises, a manufacturer of a variety of transportable spin rides, issues $420,000 of 6% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Required: 1. If the market interest rate is 6%, the bonds will issue at $420,000. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021.

Answer 1

a.

1 January 2021 Cash $420,000 Dr

Bonds Payable $420,000 Cr

30 June 2021 Interest expense $12600 Dr

Cash $12600 Cr

31 December 2021 Interest expense $12600 Dr

Cash $12600 Cr

Step-by-step explanation:

The bonds will be issued at par as the coupon rate on bonds is equal to the market interest rate. Thus, cash will be received equal to the par value of bonds and the bonds payable will be credited.

The bonds make semi annual coupon payment. The semi annual coupon payment = 420000 * 0.06 * 6/12 = $12600

The interest/coupon will be recorded as an expense and the as it it paid on the same day, cash will be credited.