In: Accounting
On January 1, a company issued and sold a $407,000, 8%, 10-year bond payable, and received proceeds of $402,000. 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 $16,530; credit Cash $16,280; credit Discount on Bonds Payable $250.
Debit Bond Interest Expense $32,560; credit Cash $32,560.
Debit Bond Interest Expense $16,030; debit Discount on Bonds Payable $250; credit Cash $16,280.
Debit Bond Interest Expense $16,280; debit Discount on Bonds Payable $250; credit Cash $16,530.
Debit Bond Interest Expense $16,280; credit Cash $16,280.
Option - A
Face Value of bond = $ 407000 |
Cupon Rate = 8 %. |
interest payment for semi Annual Period = 407000* 8% * ( 6/12) |
16280 |
issue price = $ 402000 |
Term period of bonds = 10 years |
Discount on bonds = Face Value - issu price
= 407000 - 402000
= $ 5000
Straight line Amortization of discount per year
.= Discount / term period
= 5000 / 10
= $ 500
per semi Annual period = 500 / 2
= $ 250
journal entry
Date | Accounts Name | Debit | Credit |
30-Jun | Interest Expense | 16530 | |
Discount on bonds | 250 | ||
Cash | 16280 |