Question

A company issued 9%, 15-year bonds with a par value of $560,000 that pay interest semiannually. The market rate on the date of issuance was 9%. The journal entry to record each semiannual interest payment is: 

Multiple Choice 

• Debit Bond Interest Expense $25,200 Credit Cash $25,200. 

• Debit Bond Interest Expense $50,400; credit Cash $50.400. 

• Debit Bond Interest Payable $37,333, credit Cash $37,333 

• Debit Bond Interest Expense $510,000; credit Cash $510,000,

Answer 1

Correct answer-----------Debit bond interest expense $25,200: credit Cash $25,200

Working

Interest will be paid each half year so the interest rate applicable will be 4.5%. Interest on 560000 @4.5% will be $25200.