On February 1, Year 1, Centra issues $100,000 semi-annual 12% bonds at par plus accrued interest.The interest is payable on July 1 and January 1 of each year.What entry is necessary to record the issuance of the bonds on February 1?
A)Cash 100,000
Bonds Payable 100,000
B)Cash 101,000
Bonds Payable 101,000
C)Cash 100,000
Interest Payable 1,000
Bonds Payable 101,000
D)Cash 101,000
Bonds Payable 100,000
Interest Payable 1,000
E)none of the above

Question

On February 1, Year 1, Centra issues $100,000 semi-annual 12% bonds at par plus accrued interest.The interest is payable on July 1 and January 1 of each year.What entry is necessary to record the issuance of the bonds on February 1?
A)Cash 100,000 
Bonds Payable 100,000
B)Cash 101,000 
Bonds Payable 101,000
C)Cash 100,000 
Interest Payable 1,000
Bonds Payable 101,000
D)Cash 101,000 
Bonds Payable 100,000
Interest Payable 1,000
E)none of the above

Quizplus · Accepted Answer

The correct entry includes the cash received, which is the par value of the bonds plus the accrued interest for one month (since the bonds pay interest semi-annually and were issued one month after the last interest payment date). The bonds payable account is credited for the par value of $100,000, and the interest payable account is credited for the accrued interest of $1,000 (which is 1/6 of the semi-annual interest payment of $6,000, given the 12% annual interest rate on a $100,000 bond).

On February 1, Year 1, Centra Issues $100,000 Semi-Annual 12