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.

Short answer

Answer:

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

credited with $25,000.

Step-by-step solution

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.

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)

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