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) No entry is needed, since no interest is paid until the bond is due.
B) Debit Bond Interest Expense $22,000; credit Cash $22,000.
C) Debit Bond Interest Payable $22,000; credit Cash $22,000.
D) Debit Bond Interest Expense $550,000; credit Cash $550,000.
E) Debit Bond Interest Expense $44,000; credit Cash $44,000.

Question

Quizplus · Accepted Answer

The correct answer is B because the company has to pay interest semiannually, and the interest expense is calculated as the face value of the bond multiplied by the annual interest rate divided by 2 (since interest is paid semiannually).

A Company Issued 8%, 15-Year Bonds with a Par Value