Question

A company issued 7%, 15-year bonds with a par value of $600,000 that pay interest semiannually. The market rate on the date of issuance was 7%. The journal entry to record each semiannual interest payment is: 

Multiple Choice 

• Debit Bond Interest Expense $21,000; credit Cash $21,000. 0 

• Debit Bond Interest Expense $550,000, credit Cash $550,000. 

• Debit Bond Interest Expense $42,000 credit Cash $42,000, 

• Debit Bond Interest Payable $40,000; credit Cash $40,000.

• No entry is needed, since no interest is paid until the bond is due.

Answer 1

Answer : Debit Bond Interest Expenses $21,000 Credit : Cash $21,000

Interest Expenses For Each Semi-annual Period = 600,000*7%*6/12 = $21,000

Record the bond interest Expeses

	Debit	Credit
Interest Expenses	21,000
Cash		21,000