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:

                                                               Debit                             Credit

Bond Interest Expense                        $22,000

   Cash                                                                                        $22,000

Being semi-annual interest payment on bonds

Explanation:

The semi-interest payment on the bonds equals

Coupon rate × par Value × 1/2

Semi-annual interest payment = 8%× 550,000 × 1/2=22,000

Semi- annual payment = $22,000

The accounting entry to record the interest payment each time payment is made would be:

                                                               Debit                             Credit

Bond Interest Expense                        $22,000

   Cash                                                                                        $22,000

Being semi-annual interest payment on bonds

Note that interest payment is an expense, hence to increase an expense the expense account is debit. On the other hand. the interest payment is a cash outflow, which reduces the cash asset, hence the cash account is credited.

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