On January 1 the first day of the fiscal year a company issu

On January 1, the first day of the fiscal year, a company issues a $5,000,000, 6%, 10-year bond that pays semiannual interest of $150,000 ($5,000,000 x 6% x ½ year), receiving cash of $5,000,000.

Journalize the entries to record (a) the issuance of the bonds, (b) the first interest payment on June 30, and (c) the payment of the principal on the maturity date of December 31. Refer to the Chart of Accounts for exact wording of account titles.

Solution

Date Account Titles and Explanation Debit Credit 1-Jan Cash $5,000,000 Bonds Payable $5,000,000 (To Record issuance of bonds) 30-Jun Interest Expense $150,000 Cash $150,000 (To record first interest payment on June 30) 31-Dec Bonds Payable $5,000,000 Cash $5,000,000 (To record payment of the principal on the maturity date )