A company issued 8%,15-year bonds with a par value of $550,000 that pay interest semiannually.The market rate on the date of issuance was 8%.The journal entry to record each semiannual interest payment is:
A)Debit Bond Interest Expense $22,000; credit Cash $22,000.
B)Debit Bond Interest Expense $44,000; credit Cash $44,000.
C)Debit Bond Interest Payable $22,000; credit Cash $22,000.
D)Debit Bond Interest Expense $550,000; credit Cash $550,000.
E)No entry is needed,since no interest is paid until the bond is due.

Question

Quizplus · Accepted Answer

Since the bond pays interest semiannually at an 8% annual rate on a $550,000 par value, the semiannual interest payment is calculated as $550,000 * 8% / 2 = $22,000. The correct journal entry to record this semiannual interest payment debits Bond Interest Expense and credits Cash for $22,000.

A Company Issued 8%,15-Year Bonds with a Par Value of $550,000