Question

Splish Inc. issued $120,000, 5-year bond on January 1, 2021 paying 8% interest on a semi-annual basis every January 1 and July 1.

Prepare the first-year journal entries for the bond issue and interest expense assuming that the company uses the effective interest method, a market interest rate of 7% and has a year-end of December 31, 2021. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

		In the books of Splish Inc.
Date		Particulars	Amount In dollar Debit	Amont In dollars Credit
Jan 1, 2021		Bank A/c........................Dr To,8% Bonds A/c [Being the bond issued and cash came into company]	120000	120000
Jan 1, 2021		No entry	0000	0000
July 1, 2021		Interest Expense A/c...............Dr To, Bank A/c (120000×8%×6)÷12 [ Being the interest amount has been paid ]	4800	4800
Dec 31, 2021		Profit and Loss A/c..........Dr To, Interest Expense A/c. [ Being the interest has been transferred to the profit and Loss account ]	4800	4800

Note:

1) Since the bond has been issued in Jan 1, 2021 so there will be no interest on this date and above is given journal entry only for one year since it has asked for one year journal entry .