A Company Issued 8%, 15-Year Bonds with a Par Value

question 96

Multiple Choice

A company issued 8%, 15-year bonds with a par value of $550,000 that pay interest semiannually. The market rate on the date of issuance was 8%. The journal entry to record each semiannual interest payment is:

• A) No entry is needed, since no interest is paid until the bond is due.
• B) Debit Bond Interest Expense $22,000; credit Cash $22,000.
• C) Debit Bond Interest Payable $22,000; credit Cash $22,000.
• D) Debit Bond Interest Expense $550,000; credit Cash $550,000.
• E) Debit Bond Interest Expense $44,000; credit Cash $44,000.

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Definitions:

GAAP

Generally Accepted Accounting Principles; the common set of accounting standards and procedures used in the U.S.

Accrual Basis

The accrual basis of accounting records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.

Cash Basis

An accounting method where revenues are recognized when cash is received, and expenses are recorded when cash is paid.

Debit Portion

The side of an accounting entry that increases asset or expense accounts or decreases liability, equity, or revenue accounts.