On January 1, a company issued and sold a $391,000, 7%, 10-year bond payable, and received...

On January 1, a company issued and sold a $391,000, 7%, 10-year bond payable, and received proceeds of $386,000. 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 $13,435; debit Discount on Bonds Payable $250; credit Cash $13,685.
Debit Bond Interest Expense $27,370; credit Cash $27,370.
Debit Bond Interest Expense $13,935; credit Cash $13,685; credit Discount on Bonds Payable $250.
Debit Bond Interest Expense $13,685; debit Discount on Bonds Payable $250; credit Cash $13,935.
Debit Bond Interest Expense $13,685; credit Cash $13,685.

Solutions

Expert Solution

C. Debit Bond Interest Expense $13,935; credit Cash $13,685, credit Discount on Bonds Payable $250

Cash = $391,000 x .07 x 1/2 = $13,685

Discount Amortized = ($391,000 - $386,000) / 20 = $250

Interest expense = $13,685 + $250 = $13,935

ekkarill92 answered 2 years ago

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