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14 August, 12:08

On June 30, Police Company issues 6 % , 10 -year bonds payable with at face value of $ 100 comma 000. The bonds are issued at face value and pay interest on June 30 and December 31. Requirements 1. Journalize the issuance of the bonds on June 30. 2. Journalize the semiannual interest payment on December 31.

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  1. 14 August, 12:12
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    The journal entry upon issuance of the bond is as follows:

    Dr Cash $100,000

    Cr Bonds payable $100,000

    to record issuance of bond for cash

    Journal entry for semi-annual interest

    Dr Interest expense $6000

    Cr Cash $6000

    Being payment of bond semi-annual interest

    Explanation:

    Upon issuance of the bond with face value and issue price of $100,000, the cash position of the Police company increases by $100,000, hence the cash account should receive a debit of $100,000, but the issue also implies increased debt obligation, as a result, the bonds payable account is also credited with the same amount.

    Concerning, the interest payment, which is an outflow of cash, the cash account is credited and the interest expense account is debited as an increase in expense.

    The amount of interest is $6000 (6%*$100,000).
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