Question

Madrid Company plans to issue 9% bonds with a par value of $4,200,000. The company sells $3,780,000 of the bonds at par on January 1. The remaining $420,000 sells at par on July 1. The bonds pay interest semiannually on June 30 and December 31. 1. Record the entry for the first interest payment on June 30. 2. Record the entry for the July 1 cash sale of bonds.

Answer 1

Journal entries is seen below

1. Interest payment expenses $170,100

To cash $170,100

2. Cash $420,000

To bond payable $420,000

Step-by-step explanation:

Journal entries with explanations.

1. Interest expenses $170,100

To cash $170,100

(It is recorded being the first interest payment)

The working is as seen below;

= $3,780,000 x 9% x 6 months ÷ 12 months

= $170,100

As per the recording, the interest expense was debited because it increased the expenses while cash is paid which reduced the cash balance hence credited.

2. Cash $ 420,000

To bond payable $420,000

(Being the cash sale of bond that is recorded.)

For the recording, cash was debited as it was received because it increased the cash balance and also credited to bond payable account.