Question

Please explain

Use the following information for the next two questions:
On Apr. 1, 2017 a company issues a 5%, $800,000 bond at par dated Jan. 1, 2017 and maturing Jan. 1, 2027. Interest is paid semiannually on Jan. 1 and July 1.
18. How should the company record Interest Expense (1) at issuance on Apr. 1 and (2) at the first interest payment on July 1?
A. Record nothing; Debit $20,000
B. Credit $10,000; Debit $20,000
C. Debit $10,000; Debit $10,000
D. Record nothing; Debit $10,000
19. Assume now that the bond is issued at 103. Which of the following is incorrect regarding the issuance of the bond?
A. Debit Cash for $810,000
B. Credit Bonds Payable for $800,000
C. Credit Premium on Bonds Payable for $24,000
D. Credit Interest Expense for $10,000

Answer 1

• [18]
  >On issuance no Interest is to be recorded.
  >On Jul 1, Interest expense is to be debited by the amount of interest of 3 months (April, may, June)
  >3 month interest =$ 800000 x 5% x 3/12 = $10,000
  >Correct Answer = Option ‘D’ Record nothing, Debit $ 10,000
• [19]
  >Correct Answer is Option ‘A’ Debit Cash for $ 810000 is incorrect.
  >Cash is to be debited by amount of bonds payable and premium = 800000 + (800000 x 3/100) = $ 824,000