Question

Derp Corp issued 15 year bonds payable with a face amount of 70,000 when the market interest rate was 6.5%. The bonds were issued at par. Assume that the accounting year of Derp ends on Dec 31. Journalize the following transactions for Derp.

a. Issuance of the bonds payable at par on July 1, 20x0.

b. Accrual of interest expense on Dec 31, 20x0.

c. Payment of cash interest on January 1, 20x1.

d. Payment of the bonds payable at maturity

Answer 1

• All journal entries, as asked

Date	Accounts title	Debit	Credit
(a) 1 Jul 20x0	Cash	$            70,000.00
	Bonds payable		$           70,000.00
	(Bonds issued at par)
(b) 31 Dec 20x0	Interest Expense [70000 x 6.5% x 6/12]	$              2,275.00
	Interest Payable		$             2,275.00
	(6 months interest accrued)
(c ) 1 Jan 20x1	Interest Payable	$              2,275.00
	Cash		$             2,275.00
	(Accrued interest now paid in cash)
(d) On Maturity	Bonds Payable	$            70,000.00
	Cash		$           70,000.00
	(Cash paid at Maturity)