Wize University Introduction to Financial Accounting Textbook > Long-Term Liabilities
Recording a Coupon Payment
Popular Courses
COMM 217
Concordia University
ACCT 2301
The University of Texas at Dallas
Intro to Financial Accounting
General Course
COMM 293
University of British Columbia
Intro to Financial Accounting
University Study Guides
MGCR 211
McGill University
ACCT 1220
University of Guelph
Intro to Financial Accounting
University Study Guides
ACCT 217
University of Calgary
ADMS 2500
York University
COMMERCE 1AA3
McMaster University
COMM 111
Queen's University
ADM 1340
University of Ottawa
BU127
Wilfrid Laurier University
COMM 1101
Dalhousie University
ACCT 2301
Houston
ACCT 2301
Houston
AFM 101
University of Waterloo
BUS 251
Simon Fraser University
AFA 100
Toronto Metropolitan University
0:00 / 0:00
Journal Entry: Interest Payments
The journal entry to record the payment of interest on bonds reflects the amount of cash paid to the investor, as well as the amortization of the discount or premium on the bond.
Interest Payment on a Discount Bond
- Payment is always less than expense
- Difference between expense and payment is the amortization of the discount
- Decreases the discount
- Increases carrying value of the bond
Interest Payment on a Premium Bond
- Payment is always more than expense
- Difference between expense and payment is the amortization of the premium.
- Decreases the premium
- Decreases carrying value of the bond.
0:00 / 0:00
Example: Recording a Coupon Payment
ABC Inc. issued a 5-year semi-annual bond with a coupon rate of 10% and a face value of $100,000. The market rate at issuance was 8% and the company's fiscal year ends on December 31.
Using the amortization table, prepare the journal entry to record coupon payment on August 1st, 2020.
0:00 / 0:00
Example: Recording a Coupon Payment
United Airlines issued bonds with a face value of $250,000 and a coupon rate of 5%, coupons are paid annually. The bonds mature in 10 years and at the time of issuance the market rate was 7%. Prepare the journal entry to record the coupon payment on September 1st, 2020.
0:00 / 0:00
Example: Recording a Coupon Payment
On January 1st, 2025 American Airlines issued bonds with a face value of $300,000 and a coupon rate of 5%, coupons are paid annually. The bonds mature in 6 years and at the time of issuance the market rate was 5%. Prepare the journal entry to record the coupon payment on January 1st, 2026.
Ignore any interest accruals
Practice: Recording a Coupon Payment
On January 1st, 2020, Wize Corp. issued bonds with a face value of $400,000 and a stated rate of 6%. The coupons are paid semi-annually on January 1st and July 1st and will expire in 10 years. The market rate at the time of issuance was 8% and the bonds were initially sold for $345,643.60.
Prepare the journal entry to record the coupon payment on July 1st, 2020 and January 1st, 2021.
Ignore any interest accruals and round final answers to 2 decimal places.
July 1st, 2020
Transactions:
| Account | Debit | Credit |
|---|---|---|
Practice: Recording a Coupon Payment
On April 1st, 2020, Apple Inc. issued 5-year bonds with a coupon rate of 7% paid annually on April 1st. The market rate at issuance was 6% and the face value of the bonds was $2,000,000. The company's fiscal year ends December 31.
Prepare the journal entry to record first coupon payment.
Ignore any interest accruals, round present value factors to 4 decimal places and round final answer to the nearest dollar
Transactions:
| Account | Debit | Credit |
|---|---|---|
Practice: Recording a Coupon Payment
On March 1st, 2020, Tesla Motors Inc. issued 7-year bonds with a coupon rate of 8% paid annually on March 1st. The market rate at issuance was 8% and the face value of the bonds was $1,000,000.
Prepare the journal entry to record first coupon payment.
Ignore any interest accruals, round present value factors to 4 decimal places and round final answer to 2 decimal places.
Transactions:
| Account | Debit | Credit |
|---|---|---|