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11 April, 03:12

Pretzelmania, Inc., issues 7%, 10-year bonds with a face amount of $70,000 for $70,000 on January 1, 2018. The market interest rate for bonds of similar risk and maturity is 7%. Interest is paid semiannually on June 30 and December 31. 1. & 2. Record the bond issue and first interest payment on June 30, 2018

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  1. 11 April, 03:19
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    January 1, 2018

    Dr. Cash $70,000

    Cr. Bond Payable $70,000

    June 30, 2018

    Dr. Interest Expense $2,450

    Cr. Cash $2,450

    Explanation:

    If the market rate is equal to the coupon rate of a bond, the bond will be issued at par. Bond is recognised as a liability and recorded in the account of Bond Payable.

    Interest is paid on the face value and stated rate of the bond.

    Interest Payment = Face value x Coupon rate x 6/12 = $70,000 x 7% x 6/12 = $2,450.
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