Question

Issuing Bonds at a Face Amount

On January 1, the first day of the fiscal year, Designer Fabric Inc. issues a $900,000, 8%, 10-year bond that pays semiannual interest of $36,000 ($900,000 × 8% × ½ year), receiving cash of $900,000.

(a)  Journalize the entry to record the issuance of the bonds.

(b)  Journalize the entry to record the first interest payment on June 30.(b)  Journalize the entry to record the first interest payment on June 30.

(c)  Journalize the entry to record the payment of the principal on the maturity date.

Answer 1

S no	Account Details & Explanation	Debit	Credit
a	Cash	$900,000
	Bonds Payable		$900,000
	(Being bonds issued)
b	Interest Expense	$36,000
	Cash		$36,000
	(being first interest payment recorded)
b	Interest Expense	$36,000
	Cash		$36,000
	(being Second interest payment recorded)
c	Bonds payable	$36,000
	Cash		$36,000
	(Being bonds payable paid)