A company issued 7%, 15-year bonds with a par value of $480,000 that pay interes

Question

A company issued 7%, 15-year bonds with a par value of $480,000 that pay interest semi-annually. The current market rate is 7%. The journal entry to record each semiannual interest payment is:

A.) Debit Bond Interest Expense $16,800; credit Cash $16,800.

B.) Debit Bond Interest Expense $33,600; credit Cash $33,600.

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

D.) Debit Bond Interest Expense $430,000; credit Cash $430,000.

E.) Debit Bond Interest Expense $32,000; credit Cash $32,000.

A company issued 7%, 15-year bonds with a par value of $480,000 that pay interest semi-annually. The current market rate is 7%. The journal entry to record each semiannual interest payment is:

Explanation / Answer

Current market rate and interest rate on the bond is same 7%, hence there shall be no premium or discount ion bonds.

Semiannual Interests Expense shall be equal to interest paid = face value * Interest % * 6 /12

= 480000 * 7% *6/12

= $16800

The journal entry shall be as under:

Interest Expense Debit $16800

Cash Credit $16800

(Being interest paid)

Hence the correct answer is :

A.) Debit Bond Interest Expense $16,800; credit Cash $16,800.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.