On January 1, 2020, XYZ Co. issued a bond with a face value of $400,000. The bond is a 5-year bond and will mature on December 31, 2025. The bond has a contract interest rate of 5% and interest is paid semi-annually on June 30 and December 31 of each year. On January 1, 2020, the market interest rate for

Sep 8, 2023

On January 1, 2020, XYZ Co. issued a bond with a face value of $400,000. The bond is a 5-year bond and will mature on December 31, 2025. The bond has a contract interest rate of 5% and interest is paid semi-annually on June 30 and December 31 of each year. On January 1, 2020, the market interest rate for the bonds was 6%. The issue price of the bond was $382,942. The journal entry to record the issuance of the bond would be:

                                    debit               credit       

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On January 1, 2020, XYZ Co. issued a bond with a face value of $400,000. The bond is a 5-year bond and will mature on December 31, 2025. The bond has a contract interest rate of 5% and interest is paid semi-annually on June 30 and December 31 of each year. On January 1, 2020, the market interest rate for
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Cash                        $382,942

Discount on B/P    17,058

Bonds Payable                         $400,000

REQUIRED:

Using the approach recommended by Professor A, prepare the journal entry to record the first interest payment on the XYZ Co. bond on June 30, 2020 using the straight-line method. (Show your work on each step using the recommended approach.)

The five-step approach recommended by Professor A:

  1. a. Calculate the amount of the interest payment (Interest = Principle X Rate X Time).
  2. b. Immediately credit in Cash the amount of the calculated interest payment.
  3. c. Fill in the account names for the rest of the journal entry. You will always have a charge to Bond Interest Expense. If B/P Discount was charged on the bond issue entry, you will have a credit for B/P Discount on this entry. If the B/P Premium was credited in the bond issue entry, you will have a debit to the B/P Premium in this entry.
  4. d. To determine the amount of credit to B/P Discount or debit to B/P Premium, divide the total discount or premium amount by the number of interest payments.
  5. e. To determine the amount of the debit to the Bond Interest Expense, PLUG IT IN (Enter Balance).

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