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On 6/30/12, a company recorded a journal entry for the coupon payment on its bond. As part of the journal entry, the company debited bonds payable. Which of the following is true regarding this journal entry?

a. The company debited Interest Expense
b. The bond was issued at a discount
c. The proceeds of the bond were less than the face value
d. The company credited Cash
e. The coupon rate is greater than the effective rate

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Answer:

  • a. The company debited Interest Expense  
  • d. The company credited Cash

Explanation:

The coupon payment represents the interest payment being paid by the company on the bond. They will therefore record this coupon by debiting it to the Interest expense account as expenses are debited when they are incurred.

The same amount will be credited to the Cash account because the payment will come from the cash holdings of the company. Cash is an asset account so it is credited when it reduces.

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