Question

# 1.On January 1, Flounder Corp. issues \$2280000, 5-year, 12% bonds at 97 with interest payable on...

1.On January 1, Flounder Corp. issues \$2280000, 5-year, 12% bonds at 97 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a

 credit to Discount on Bonds Payable, \$13680.
 debit to Interest Expense, \$273600.
 debit to Interest Expense, \$136800.
 credit to Discount on Bonds Payable, \$6840.

2.

Oriole Company issued \$580000 of 8%, 5-year bonds at 107, which pay interest annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?

 \$612480
 \$616540
 \$624660
 \$620600

Question 1:

The correct option is A i.e Credit to discount on bonds payable \$13,680.

 Interest expense \$13,680 Discount on bonds payable \$13,680

Working:

 Bond issue price (\$2,280,000 / 100) * 97 \$2,211,600 Discount on bonds (2,280,000 - 2,211,600) \$68,400 Discount amortized per year (68,400 / 5) \$13,680

Question 2:

The correct option is A i.e 612,480

 Bond issue price (580,000 / 100) * 107 \$620,600 Premium on bonds (620,600 - 580,000) \$40,600 Premium amortized per year (40,600 / 5) \$8,120 Premium remaining (40,600 - 8,120) \$32,480 Carrying value of bond after 1 year (580,000 + 32,480) \$612,480

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