Is my professor correct?

[Accounts Playable]

I work in accounting and I am finishing up my degree at the same time, so I feel like I am a step above the rest of my peers. Today in class we were presented with the following problem, and the way it was done just didn't seem right to me. I work doing taxes, but I get stuck with some cleanup bookkeeping sometimes and negative expenses, liabilities, and assets are one of the things that sticks out to me the most:

Devers Corporation issued $494,000 of 6% bonds on May 1, 2013. The bonds were dated January 1, 2013, and mature January 1, 2015, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Devers's journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

My professor told us that the journal entry to part A is: Dr. Cash 503,880 Cr. Bond Payable 494,000 Cr. Interest Expense 9,880.

I asked her why we would credit interest expense if there had been no previous debit in the expenses account which would create a negative expense. She then said that it is covered with part B which is: Dr. Interest Expense 14,820 Cr. Cash 14,820.

I would think that instead you would make journal entry for part A: Dr. Cash 503,880 Cr. Bond payable 494,000 Cr. Interest payable 9,880.

Then Part B would be: Dr. Interest payable 9,880 Dr. Interest expense 4,940 Cr. 14,820.

She said that the way she showed is the correct way to do it and that it isn't done the way I seem to think it would be done. She has her PhD so maybe there is something I'm missing, but I don't see how I'm wrong.

Thanks!

 

[kirby]

So I check into my massive acctg book and -holy cow- the method she uses is correct - (BUT the book also mentions you can do it your way)
.
WOW! How did the Enron dudes miss out on this? By issuing debt you can INCREASE net income!! No way this should be the case. Violates conservatism big time but there it is in black and white.
Anyway, you are correct - the way any rational person would do this is to record the $9,880 as a payable not as a reduction of interest expense.

 

[Accounts Playable]

Interesting! When I brought it up in class she completely disregarded my way! Well, I guess I will just do it her way on the test since it is correct, but it just seems so backwards to me lol.

Thanks for clearing that up!