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
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Answer #1

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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