Journal Entries for Bonds at Par
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.
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:
-
Interest Expense $2,360.00 Cash $2,360.00
Explanation:
- First, remember the formula for period interest expense.
PAYMENT = BOND FACE VALUE * INTEREST RATE - Then plug in the numbers.
$2,360.00 = $59,000 * 4%