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On April 1,Year 1,Greenway Corporation issues $20 million of 10%,20-year bonds payable at par.Interest on the bonds is payable semiannually each April 1 and October 1.
-The journal entry to record the first cash payment to bondholders on October 1,year 1,will include:
A)A credit to Cash of $2,000,000.
B)A debit to Bonds Payable of $1,000,000.
C)A debit to Interest Expense of $1,000,000.
D)A credit to Interest Payable of $1,000,000.

Question

Quizplus · Accepted Answer

DThe first cash payment for interest on the bonds would include a debit to Interest Expense for the amount of interest accrued over the period, which is $1,000,000 (calculated as $20,000,000 * 10% * 6/12), and a credit to Interest Payable or directly to Cash if the payable account was not previously recognized for the same amount, indicating the payment of the interest.

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