On January 1, a company issues bonds dated January 1 with a par value of $360,00
ID: 2415063 • Letter: O
Question
On January 1, a company issues bonds dated January 1 with a par value of $360,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $346,096. The journal entry to record the first interest payment using the effective interest method of amortization is:
(a) Debit Interest Payable $16,200.00; credit Cash $16,200.00. (b)Debit Interest Expense $15,095.20; debit Discount on Bonds Payable $1,104.80; credit Cash $16,200.00. (C) Debit Interest Expense $15,095.20; debit Premium on Bonds Payable $1,104.80; credit Cash $16,200.00. (D) Debit Interest Expense $17,304.80; credit Premium on Bonds Payable $1,104.80; credit Cash $16,200.00. (E)Debit Interest Expense $17,304.80; credit Discount on Bonds Payable $1,104.80; credit Cash $16,200.00.
Explanation / Answer
E)Debit Interest Expense $17,304.80; credit Discount on Bonds Payable $1,104.80; credit Cash $16,200.00.
Interest = $346,096 x 10%/2 = $17,304.80
Coupon Payment = $360,000 x 9%/2 = $16,200
Disount Amortization = $17,304.80 - 16,200 = 1104.80