Question

On january 1, applied technologies corporation (atc) issued $650,000 in bonds that mature in 10 years. the bonds have a stated interest rate of 12 percent. when the bonds were issued, the market interest rate was 12 percent. the bonds pay interest once per year on december 31. determine the price at which the bonds were issued and the amount that atc received at issuance. complete the required journal entries to record the bond issuance and the first interest payment on december 31 assuming no interest has been accrued earlier in the year. (if no entry is required for a transaction/event, select "no journal entry required" in the first account field.)

Answer 1

Since the bond's coupon rate is identical to the market rate, then they should have been sold at face value. Since we are not given any costs associated to the issuance, then I will assume it is $0.

January 1, bond issuance:

Dr Cash 650,000

Cr Bonds payable 650,000

December 31, coupon payment:

Dr Interest expense - bonds 78,000

Cr Cash 78,000