Answer:
Debit Interest Expense $22,000; Credit Cash/Bank $22,000
Explanation:
With an interest rate of 8%, and a par value of $550,000
Annual interest rate = 8% * 550,000 = $44,000
Since interest are paid semi-annually, each semi-annual interest is computed as follows:
8% * 550,000 * 0.5 (by dividing the annual interest into 2)
= $22,000.
The interest paid is an expense to the company, and will be paid out of its cash or bank.
Therefore, the journal entry is:
Debit Interest Expense Account $22,000
Credit Cash/Bank Account $22,000.
Answer:
Debit interest expense by $22,000 semiannually
Similarly, Credit Cash by $22,000 semiannually.
Explanation:
Every year, following two entries will be made to record the coupon payments made semiannually (Each 6 months)
Date: 30 June
Dr. Interest expense [tex]550000*\frac{0.08}{2}*\frac{6 Months}{12 Months}[/tex] $22,000
Cr. Cash $22,000
Date: 31 Dec
Dr. Interest expense [tex]550000*\frac{0.08}{2}*\frac{6 Months}{12 Months}[/tex] $22,000
Cr. Cash $22,000
Entries will repeat until the maturity of bond, i.e. 15 years.
