I Like Accounting

Journal Entries for Bonds at Par

Lesson
📖 Click Here for Lesson 📕 Click Here to Hide Lesson

There are three basic transactions that involve bonds:

  • Issuing a bond
  • Paying the interest on the bond (often yearly)
  • Retiring the bond

This module will let you practice each of the above on a bond sold at face value.

Question
You've just been hired as a CFO and are trying to make sense of the firm's financials.
What is the journal entry for making an interest payment on the bond?
Answer
📖 Click Here for Answer & How to Solve 📕 Click Here to Hide Answer

👉 Answer:

  • Interest Expense     $6,570.00    
         Cash     $6,570.00    

👨‍🎓 Here are the steps to figure it out:

  1. First, remember the formula for period interest expense.
    PAYMENT = BOND FACE VALUE * INTEREST RATE
  2. Then plug in the numbers.
    $6,570.00 = $73,000 * 9%
Random FAR 🔀 Try Again 🔁