Question

On January 1, a company issued and sold a $409,000, 6%, 10-year bond payable, and received proceeds of $404,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is:

Multiple Choice

• Debit Bond Interest Expense $12,020; debit Discount on Bonds Payable $250; credit Cash $12,270.

• Debit Bond Interest Expense $12,520; credit Cash $12,270; credit Discount on Bonds Payable $250.

• Debit Bond Interest Expense $12,270; debit Discount on Bonds Payable $250; credit Cash $12,520.

• Debit Bond Interest Expense $24,540; credit Cash $24,540.

• Debit Bond Interest Expense $12,270; credit Cash $12,270.

Answer 1

Correct answer---------Debit Bond Interest Expense $12,520; credit Cash $12,270; credit Discount on Bonds Payable $250.

Working

Date	Account Title and Explanation	Debit	Credit
June 30	Bond interest expense	$              12,520
	Discount on bonds payable		$           250.00
	Cash		$           12,270
	(Interest on bond paid and Discount amortized)

Bond issue price	$ 404,000
Face value	$ 409,000
Discount on bonds payable	-$ 5,000
Number of Interest payments (10 years x 2)	$                    20
Discount/ premium to be amortized per Half year	$          (250.00)
Interest on bond	$      12,270.00
Interest expense to be recorded (12270+250)	$            12,520