Question

Journalizing bond issuance and interest payments

On June 30, Parker Company issued 11%, five-year bonds payable with a face value

of $120,000. The bonds are issued at face value and pay interest on June 30 and

December 31.

Requirements

1. Journalize the issuance of the bonds on June 30.

2. Journalize the semiannual interest payment on December 31

Short answer

The interest expense account is debited with $6,600 and the cash account is credited with $6,600.

Step-by-step solution

Definition of the bond

The bond is a type of long-term liability that the company issues to complete the need for a large amount of money.

Journal entry of the issue of bond

Date	Particulars	Debit	Credit
December 31	Interest Expense	$6,600
	Cash		$6,600
	(Entry for the payment of interest)

$\begin{array}{rcl}Interest& =& faceValue\times InterestRate\times TimePeriod\\ & =& \$120,000\times 11\%\times \frac{6}{12}\\ & =& \$6,600\end{array}$