Q9SE_2 - Horngren'S Financial And Managerial Accounting

Question

Journalizing bond transactions including retirement at maturity McQueen Company issued a $100,000, 7.5%, 10-year bond payable. Journalize the following transactions for McQueen Company, and include an explanation for each entry:

a. Issuance of the bond payable at face value on January 1, 2018.

b. Payment of semiannual cash interest on July 1, 2018.

c. Payment of the bond payable at maturity, assuming the last interest payment had already been recorded. (Give the date.)

Step-by-Step Solution

Answer

The interest expense account is debited with $3,750 and the cash account is credited with $3,750.

Step 1: Entry for the issue of bond

Date	Particulars	Debit	Credit
July 1, 2018	Interest Expense	$3,750
	Cash		$3,750
	(To record the payment of interest)

Step 2: Calculation of interest expenses

$\begin{array}{c}\mathrm{Coupon} \mathrm{Amount}=\mathrm{Par} \mathrm{Value}\times \mathrm{Coupon} \mathrm{Rate}\times \mathrm{Time} \mathrm{Period}\\ =\mathrm{\$}100,000\times 7.50\mathrm{\%}\times \frac{6}{12}\\ =\mathrm{\$}3,750\end{array}$