Question

On January 1 a company issued and sold a $400,000, 7%, 10 year bond payable, and received cash proceeds of $396,000. Interest is payable each December 31. The company uses the straight line method to amortize the discount. The journal entry to record the first interest payment is: A. debit to bond interest expense of $28,000, credit to cash of $28,000 B. debit to bond interest expense of $28,400, credit to cash of $28,000, credit to discount on bonds payable of $400 C. debit to bond interest expense of $27,600, debit to discount on bonds payable of $400, credit to cash of $28,000 D. debit to bond interest expense of $28,000, debit to discount on bonds payable of $400, credit to cash of $28,400

Answer 1

Answer: Option (B)

Bond Interest Expense.......................$28,400

          Cash.................................................................$28,000

          Discount on bond payable........................................$400

                    (Being interest on bond payed)

Explanation :

Interest : $ 400000 * 7/100 = $28,000

Discount : $400,000 - $396,000 / 10 = $400