Question

Madrid Company plans to issue 8% bonds on January 1, 2017, with a par value of $4,000,000. The company sells $3,600,000 of the bonds at par on January 1, 2017. The remaining $400,000 sells at par on July 1, 2017. The bonds pay interest semiannually as of June 30 and December 31.

1. Record the entry for the first interest payment on June 30, 2017.
2. Record the entry for the July 1 cash sale of bonds.

Answer 1

Answer and Explanation:

The journal entries are shown below:

1. Bond interest expense Dr ($3,600,000 × 8% ÷ 2) $144,000

To Cash $144,000

(Being the first interest payment is recorded)

For recording this , we debited the bond interest expense as it increased the expense and credited the cash as it decreased the assets

2. Cash Dr $400,000

To Bond payable $400,000

(being the cash sale of the bond is recorded)

For recording this we debited the cash as it increased the assets and credited the bond payable as it also increased the liabilities