Question

In: Accounting

On January 1, a company issued and sold a $407,000, 8%, 10-year bond payable, and received...

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.

Expert Solution

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

ekkarill92 answered 3 years ago

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