5 May, 13:12

# Pretzelmania, Inc., issues 7%, 10-year bonds with a face amount of \$70,000 for \$70,000 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 7%. Interest is paid semiannually on June 30 and December 31.Required:Record the bond issue and first interest payment on June 30, 2021.

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1. 5 May, 13:19
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The bond issue and first interest payment on June 30, 2021 journal entries would be as follows:

January 1, 2021

Debit Credit

Cash \$70,000

Bond payable \$70,000

June 30, 2021

Debit Credit

Interest Expense \$2,450

Cash \$2,450

Explanation

The journal entry for the bond issue would be the following:

January 1, 2021

Debit Credit

Cash \$70,000

Bond payable \$70,000

In order to prepare the journal entry for first interest payment on June 30, 2021 we would have to calculate the interest expense as follows:

interest expense=face value of bonds*interest rate * (6 months/12 months)

interest expense=\$70,000*7% * (6 months/12 months)

interest expense=\$4,900 * (6 months/12 months)

interest expense=\$2,450

Therefore, the journal entry for first interest payment on June 30, 2021 would be as follows:

June 30, 2021

Debit Credit

Interest Expense \$2,450

Cash \$2,450