Question

On January 1, 2021, White Water issues $600,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year.
Required:
Assuming the market interest rate on the issue date is 7%, the bonds will issue at $600,000. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021. (If no entry is required for a particular transaction/event, select "No Journal entry required" in the first account field.)

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

1. Cash Dr, $600,000

         To Bonds Payable $600,000

(Being Bonds issued is recorded)

Here we debited the cash as increased the assets and we credited the bonds payable as  it also increased the liabilities

2. Interest Expense Dr, $21,000 ($600000 × 7% × 6 ÷ 12)

              To Cash $21,000

(Being first semi annual interest paid is recorded)

Here we debited the interest expenses as it increased the expenses and we credited the cash as  it decreased the assets

3. Interest Expense Dr, $21,000 ($600,000 × 7% × 6 ÷ 12)

              To Cash $21,000

(Being second semi annual interest paid is recorded)

Here we debited the interest expenses as it increased the expenses and we credited the cash as  it decreased the assets

Answer 2

Here, we are going to prepare the entry for the bond in the question.

Date             Accounts title and explanation          Debit        Credit

01-Jan-21      Cash                                                  $600,000

                           Bonds Payable                                              $600,000

                     (Bonds issued)

30-Jun-21      Interest Expense                              $21,000

                      [600000 x 7% x 6/12]

                            Cash                                                               $21,000

                      (First semi annual interest paid)

31-Dec-21       Interest Expense                              $21,000

                      [600000 x 7% x 6/12]

                           Cash                                                                $21,000

                      (Second semi annual interest paid)

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