Interest Expense / Interest payable accounting question?

Question

Hi, please help me with the following question, given that a company's fiscal year ends on Dec 31 2008.

On November 1, 2006, Clancy issued 180 $1,000 bonds at par value. Interest is paid semi-annually on April 30 and October 31.


I am certain that you must debit Interest Expense and credit Interest Payable but how much?

thank you

On August 1, 2008, Clancy purchased at par value 40 $1,000, 9% bonds maturing on August 31, 2010.

This is all the extra information with a percentage

Answer 1

Read your question again. The coupon rate should be stated somewhere - like 6% or 8%. Without that, you can't calculate interest amounts.

Ok, so now you've given us the coupon rate at 9%, but you've changed your question. Did the co. issue 180 $1,000 bonds or purchase 40 $1,000 bonds?

I shall answer the 1st part of the question but using 9% coupon rate, just so that you know how it's done. The bond interest is 9% so it's $90 per bond. You've 180 bonds, so total interest is $90 x 180 = $16,200, payable as follows : $8,100 on April 30 and $8,100 on October 31. Your journal entry on Dec 31:
Dr Bond interest $2,700 (2 mths)
Cr Bond interest payable $2,700

Journal entry on April 30:
Dr Bond interest $5,400 (4 mths)
Dr Bond interest payable $2,700
Cr Cash $8,100

Journal entry on Oct 31:
Dr Bond interest $8,100
Cr Cash $8,100

Then come Dec 31 you repeat the whole sequence again until the bond is redeemed or sold.

Answer 2

Sandy is right. You must have the coupon rate to determine
the interest expense.

Maybe all this question is looking for is what you would debit and credit, not the amount.

Does it specifically ask for the amount?