On January 1, 2021, Splash City issues $460,000 of 8% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Required: Assuming the market interest rate on the issue date is 8%, the bonds will issue at $460,000. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

The appropriate journal entries to  record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021 are:

Splash City Journal entries

January 01, 2021

Debit Cash$460,000  

Credit Bonds payable$460,000  

(To record Issuance of bonds )  

June 30, 2021

Debit Bond interest expense$18,400  

Credit Cash  $18,400

(8%/2×$460,000 )

(To record Interest on bond paid)

December 31, 2021

Debit Bond interest expense$18,400  

Credit Cash  $18,400  

(To record Interest on bond paid)

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The journal entry is shown below:

Explanation:

Journal Entry.

Jan.1  Cash A/c Dr    $460,000

           To Bonds payable A/c    $460,000

(Bond issue is being recorded)  

Jun.30  Interest Expense A/c Dr    $18,400

           To Cash A/c    $18,400  ($460,000×4% = $18,400)

(Interest is being recorded)

Dec.31  Interest Expense A/c Dr    $18,400

           To Cash A/c    $18,400  ($460,000×4% = $18,400)

(Interest is being recorded)    

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