Question

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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Abdul-Rahim Taysir

Answer 1

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.