MC Qu. 155 On January 1, a company issues... On January 1, a company issues bonds...

MC Qu. 155 On January 1, a company issues...

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the first interest payment using straight-line amortization is:

Multiple Choice

Debit Interest Payable $14,000.00; credit Cash $14,000.00.
Debit Interest Expense $14,000.00; credit Cash $14,000.00.
Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00.
Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00.
Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00.

Solutions

Expert Solution

Answer : Option D .

Date	Account Title and Explanation	Debit	Credit
	Interest Expense	$ 15,620.70
	Discount on Bond Payable		$ 1,620.70
	Cash		$ 14,000

Explanation ;

Bond Face Value = $ 400,000

Issue Price = $ 383,793

Discount on issue = $ 400,000 - $ 383,793 = $ 16,207

Term = 5 years

Period = 5 * 2 = 10

Amortization of discount per period = $ 16,207 / 10 = $ 1,620.70

Interest Payable ( Cash) = $400,000 * .07 * 1/2 = $ 14,000

Interest Expense = $ 14,000 + 1620.7 = $ 15,620.70

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

MC Qu. 151 On January 1, a company issues... On January 1, a company issues bonds...

MC Qu. 151 On January 1, a company issues... On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the first interest payment using the effective interest method of amortization is: Multiple Choice Debit Bond...

MC Qu. 150 On January 1, a company issues... On January 1, a company issues bonds...

MC Qu. 150 On January 1, a company issues... On January 1, a company issues bonds dated January 1 with a par value of $370,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $384,280. The journal entry to record the first interest payment using straight-line amortization is: (Rounded to the nearest dollar.) Multiple Choice: Debit...

MC Qu. 111 On January 1 of Year... On January 1 of Year 1, Congo Express...

MC Qu. 111 On January 1 of Year... On January 1 of Year 1, Congo Express Airways issued $2,700,000 of 6% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $2,450,000 and the market rate of interest for similar bonds is 7%. The bond premium or discount is being amortized at a rate of $8,333 every six months. After accruing interest at year end, the company's December 31, Year 1 balance sheet should...

MC Qu. 120 A company issued... A company issued 5-year, 6% bonds with a par value...

MC Qu. 120 A company issued... A company issued 5-year, 6% bonds with a par value of $92,000. The company received $89,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is: Multiple Choice: $5,520.00. $5,930.60. $2,554.70. $2,965.30. $2,760.00. MC Qu. 122 A company issued... A company issued 11%, 5-year bonds with a par value of $150,000. The market rate when the bonds were issued was 12%. The company received $144,481...

1. On January 1, a company issues bonds dated January 1 with a par value of...

1. On January 1, a company issues bonds dated January 1 with a par value of $260,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 6% and the bonds are sold for $271,091. The journal entry to record the first interest payment using straight-line amortization is: (Rounded to the nearest dollar.) Multiple Choice Debit Bond Interest Expense $10,209; credit Discount on Bonds...

A company issues bonds with a par value of $10,000,000 on January 1, 2013. The bonds...

A company issues bonds with a par value of $10,000,000 on January 1, 2013. The bonds have an annual coupon rate of 5%, pay interest semi-annually, and will mature in 5 years. If the market rate of interest on the bonds is 6% per year, then what is the interest expense that the company will report for the year ending December 31, 2015? [Note: the company uses the effective interest method of amortization.]

On January 1, a company issues bonds dated January 1 with a par value of $330,000....

On January 1, a company issues bonds dated January 1 with a par value of $330,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $317,254. The journal entry to record the issuance of the bond is: Multiple Choice Debit Cash $317,254; debit Discount on Bonds Payable $12,746; credit Bonds Payable $330,000. Debit Cash $330,000; credit...

On January 1, a company issues bonds dated January 1 with a par value of $380,000....

On January 1, a company issues bonds dated January 1 with a par value of $380,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 6% and the bonds are sold for $396,210. The journal entry to record the issuance of the bond is: Multiple Choice Debit Cash $380,000; debit Premium on Bonds Payable $16,210; credit Bonds Payable $396,210. Debit Cash $396,210; credit...

On January 1, a company issues bonds dated January 1 with a par value of $400,000....

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the issuance of the bond is: a. Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000. b. Debit Bonds Payable $400,000;...

On January 1, a company issues bonds dated January 1 with a par value of $390,000....

On January 1, a company issues bonds dated January 1 with a par value of $390,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $405,830. The journal entry to record the first interest payment using the effective interest method of amortization is: (Rounded to the nearest dollar.) a. Debit Bond Interest Expense 19,133.00; credit Premium...

Subjects