Pizza Pier issues 9%, 11-year bonds with a face amount of $80,000 on January 1,
ID: 2535041 • Letter: P
Question
Pizza Pier issues 9%, 11-year bonds with a face amount of $80,000 on January 1, 2018. The market interest rate for bonds of similar risk and maturity is also 9%. Interest is paid semiannually on June 30 and December 31. 1. Record the bond issue. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the bond issue. Note: Enter debits before credits. General Journal Debit Credit Date Jan 01, 2018 Cash Record entry Clear entry View general journal 2. Record the first interest payment on June 30, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.) View transaction list Journal entry worksheetExplanation / Answer
Because the market interest rate and coupon rate is equal the price of bonds and issue price of bonds will be equal.
1) Journal entry for issue of bonds as on 1 January 2018
Cash. debit. $ 80000
Bonds payable. Credit $ 80000
2) Journal entry for payment of interest as on 30th June
Interst expenses debit $ 3600 (80000*9/2%)
Cash credit $ 3600
There is no discount or premium on bonds payable to be amortised. The Interest expense and payment of interest is same because of equal rates. (In context of effective interest method).