General Journal Options: Notes payable Accounts receivable Interest expense Bond
ID: 2475178 • Letter: G
Question
General Journal Options:
Notes payable
Accounts receivable
Interest expense
Bonds payable
Accounts payable
Cash
Notes receivable
Interest payable
Pizza Pier issues 7%, 8-year bonds with a face amount of $70,000 on January 1, 2015. The market interest rate for bonds of similar risk and maturity is also 7%. Interest is paid semiannually on June 30 and December 31. Record the bond issue. (Omit the "$" sign in your response.) Record the first interest payment on June 30, 2015. (Do not round intermediate calculations. Omit the "$" sign in your response.)Explanation / Answer
1. If the market yield is equal to coupon rate of bond this means bond is issued at par. Hence the issue price of bond would be $70000
The journal entry would be:
Jan 1 2015: Cash A/c Dr $70000
To Bond Payable $70000
(Being bond issued for cash at par)
2. Interest to be paid on 31 Jun = $70000 * 7% * 1/2 = $2450
Jun 30 2015:
Interest expense Dr $2450
To Cash $2450
(Being half yearly interest paid)
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