On January 1st, 2011, Ultimate Butter Popcorn issued $500,000 of 5%, 10-year bon

Question

On January 1st, 2011, Ultimate Butter Popcorn issued $500,000 of 5%, 10-year bonds at a premium. The company issued these bonds for $540,878, since the market interest rate was 4%. Interest is paid semi-annually every June 30th and January 1st, what is the journal entry recorded on June 30, 2011, for the investment payment? 3. a. Interest Expense $12,000 Cash b. Interest expense 12,500 12,500 Cash Bonds Payable 1,682 10,818 c. Cash 12,500 Interest Expense 12,500 d. Interest Expense 10,818 Bonds Payable 1,682 Cash 12,500

Explanation / Answer

d. Interest expenses 10,818 ($540,878 x 4% x 1/2)

Bond Payable 1,682 (balancing figure)

Cash 12,500 ($500,000 x 5% x 1/2)

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