On January 1, the first day of the fiscal year, Designer Fabric Inc. issues a $3,000,000, 8%, 10-year bond that pays semiannual interest of $120,000 ($3,000,000 x 8% x ½ year), receiving cash of $3,000,000.
(a) Journalize the entry to record the issuance of the bonds. If an amount box does not require an entry, leave it blank.
(b) Journalize the entry to record the first interest payment on June 30. If an amount box does not require an entry, leave it blank.
(c) Journalize the entry to record the payment of the principal on the maturity date. If an amount box does not require an entry, leave it blank.
Answer
Transaction | Accounts title | Debit | Credit |
[a] Jan 1 | Cash | $3,000,000 | |
Bonds Payable | $3,000,000 | ||
(to record issuance) | |||
[b] 30 June | Interest Expense | $120,000 | |
Cash | $120,000 | ||
(to record semi annual interest payments) | |||
[c] at Maturity | Bonds Payable | $3,000,000 | |
Cash | $3,000,000 | ||
(to record redemption of bonds) |
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