Q6SE_2 - Horngren'S Financial And Managerial Accounting

Question

Journalizing bond transactions

Power Company issued a $1,000,000, 5%, 5-year bond payable at face value on

January 1, 2018. Interest is paid semiannually on January 1 and July 1.

Requirements

1. Journalize the issuance of the bond payable on January 1, 2018.

2. Journalize the payment of semiannual interest on July 1, 2018.

Step-by-Step Solution

Answer

Answer:

The interest expense account is debited with $25,000 and the cash account is

credited with $25,000.

Step 1: Definition of journal entry

Primary entry made by the accounting to record the financial transaction or event in

the books of accounts is journal entry.

Step 2: Journal entry of the issue of bond

Date	Particulars	Debit	Credit
July 1, 2018	Interest Expense	$25,000
	Cash		$25,000
	(Being entry for the payment of interest)

$$\begin{gathered} \mathit{I}\mathit{n}\mathit{t}\mathit{e}\mathit{r}\mathit{e}\mathit{s}\mathit{t}\mathbf{=}\mathit{f}\mathit{a}\mathit{c}\mathit{e}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathit{o}\mathit{f}\mathit{b}\mathit{o}\mathit{n}\mathit{d}\mathbf{\times }\mathit{I}\mathit{n}\mathit{t}\mathit{e}\mathit{r}\mathit{e}\mathit{s}\mathit{t}\mathit{r}\mathit{a}\mathit{t}\mathit{e}\mathbf{\times }\mathit{t}\mathit{i}\mathit{m}\mathit{e}\mathit{p}\mathit{e}\mathit{r}\mathit{i}\mathit{o}\mathit{d} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{5}\mathbf{\%}\mathbf{\times }\frac{\mathbf{6}}{\mathbf{12}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{25}\mathbf{,}\mathbf{000} \end{gathered}$$