On January 1, a company issued and sold a $405,000, 5%, 10-year bond payable, an
ID: 2348159 • Letter: O
Question
On January 1, a company issued and sold a $405,000, 5%, 10-year bond payable, and received proceeds of $400,000. 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 (closest to):Debit Bond Interest Expense $10,375; credit Cash $10,125; credit Discount on Bonds Payable $250.
Debit Bond Interest Expense $20,250; credit Cash $20,250.
Debit Bond Interest Expense $9,875; debit Discount on Bonds Payable $250; credit Cash $10,125.
Debit Bond Interest Expense $10,125; debit Discount on Bonds Payable $250; credit Cash $10,375.
Debit Bond Interest Expense $10,125; credit Cash $10,125.
Explanation / Answer
Cash company paid is according to par and promised interest on bond = $405,000*(5%/2) *semiannually = $10,125 Company received 5,000 less than it par value when the bond issued, according to straight line method, it amortized amount = 5,000/20 = $250 (20 is number of period, 10years *2) Therefore, Debit interest expense 9,875 (10125-250) Debit Discount Bonds Payable 250 Credit Cash 10,125