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Pretzelmania, Inc., issues 7%, 10-year bonds with a face amount of $64,000 for $64,000 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 7%. Interest is paid annually on December 31. Required: 1. & 2. Record the bond issue and first interest payment on December 31, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

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Answer and Explanation:

The Journal entries is shown below:-

The Journal entry to record the bond issue is here below:-

January 1, 2021

Cash Dr, $64,000

      To Bonds payable $64,000

(Being issue of bonds is recorded)

The Journal entry to record the interest payment is shown below:-

December 31, 2021

Interest Expenses Dr, $2,240

($64,000 × 7% × 6 ÷ 12)

     To Cash $2,240

(Being interest payment of bond is recorded)

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