On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. T
ID: 2526210 • Letter: O
Question
On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%payable in cash on December 31 of each year. The effective rate of interest was 7.389%. Assuming Residence uses the effective interest rate method, the journal entry necessary to recognize interest expense on the December 31, Year 1 is
On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%payable in cash on December 31 of each year. The effective rate of interest was 7.389%. Assuming Residence uses the effective interest rate method, the journal entry necessary to recognize interest expense on the December 31, Year 1 is
Explanation / Answer
Joournal entry :
Date accounts & explanation debit credit Year 1, dec 31 Interest expense (50000*96%*7.389%) 3546.72 Discount on bonds payable 46.72 Cash (50000*7%) 3500 (To record interest)