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On January 1, Year 1, a company issues $460,000 of 5% bonds, due in 15 years,...

On January 1, Year 1, a company issues $460,000 of 5% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year.

Required:
Assuming the market interest rate on the issue date is 5%, the bonds will issue at $460,000. Record the bond issue on January 1, Year 1, and the first two semiannual interest payments on June 30, Year 1, and December 31, Year 1.

1. Record the bond issue.

2. Record the first semiannual interest payment.

3. Record the second semiannual interest payment.

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Answer #1

ANSWER

JANUARY 1, YEAR 1

CASH. DR $4,60,000

BONDS PAYABLE CR. $4,60,000

JUNE 30, YEAR 1

BOND INTEREST EXPENSE. DR. $11,500

CASH ( $4,60,000 * 2.5%) CR. $11,500

DECEMBER 31, YEAR 1

BOND INTEREST EXPENSE. DR. $11,500

CASH ( $4,60,000 * 2.5%) CR. $11,500

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