Question

On January 1, a company issued and sold a \$400,000, 7%, 10-year bond payable, and received...

On January 1, a company issued and sold a \$400,000, 7%, 10-year bond payable, and received proceeds of \$396,000. 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:
Select one:
a. Debit Bond Interest Expense \$14,000; credit Cash \$14,000.
b. Debit Bond Interest Expense \$28,000; credit Cash \$28,000.
c. Debit Bond Interest Expense \$13,800; debit Discount on Bonds Payable \$200; credit Cash \$14,000.
d. Debit Bond Interest Expense \$14,200; credit Cash \$14,000; credit Discount on Bonds Payable \$200.

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Thank's
Abdul-Rahim Taysir

 Discount on issue of bond= \$400000-396000 =\$4000 Discount amortization for each interest period = \$4000/(10 years*2) =\$4000/20 =\$200 Coupon amount for each period = \$400000*7%*6/12 =14000 Date Account Title Debit Credit Bond interest expenses \$       14,200 Cash \$       14,000 Discount on bond payable \$             200 Correct Option : d.

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