Question

select all that apply
abc company issues a bond with a face value of $100,000 at face amount on january 1. abc prepares financial statements only at december 31, so no adjusting entries are made during the year to accrue interest. if the bond carries a stated interest rate of 6 percent payable in cash on december 31 of each year, the journal entry to record the first bond interest payment includes which of the following? (more than one answer may be correct.)

a credit to cash of $6,000
a credit to interest expense of $6,000
a debit to interest payable of $6,000
a debit to interest expense of $6,000

need help? review these concept resources.
read about the concept
rate your confidence to submit your answer. high medium low reading

Explanation:

Step1: Calculate the interest amount

The formula for simple - interest is \(I = P\times r\times t\). Here, \(P=\$100,000\), \(r = 6\%=0.06\), and \(t = 1\) year. So, \(I=100000\times0.06\times1=\$6000\)

Step2: Analyze the journal - entry

When recording the interest payment, the interest expense is recognized (debited) because it is an expense for the company. And cash is paid out (credited) as the company is using cash to make the interest payment. The journal entry is:
Debit: Interest Expense \(6000\)
Credit: Cash \(6000\)

Answer:

A. A credit to Cash of $6,000
D. A debit to Interest expense of $6,000