Question

On January 1, 2018, Splash City issues $460,000 of 8% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Required: Assuming the market interest rate on the issue date is 8%, the bonds will issue at $460,000. Record the bond issue on January 1, 2018, and the first two semiannual interest payments on June 30, 2018, and December 31, 2018.

Answer 1

Answer:

cash                     460,000 debit

 bonds payable                460,000 credit

--to record issuance of the bonds--

interest expense     18,400 debit

               cash                             18,400 credit

--to record payment of interest on bonds--

interest expense     18,400 debit

               cash                             18,400 credit

--to record payment of interest on bonds--

Explanation:

As the market rate is the same as the bond rate there will be no discount nor premium.

The interest expense will match the cash disbursements with the bonds.

cash disbursements: 460,000 x 8% /2 = 18,400