On January 1, a company issued and sold a $397,000, 5%, 10-year bond payable, an
ID: 2555244 • Letter: O
Question
On January 1, a company issued and sold a $397,000, 5%, 10-year bond payable, and received proceeds of $392,000. 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:
Debit Bond Interest Expense $9,675; debit Discount on Bonds Payable $250; credit Cash $9,925.
Debit Bond Interest Expense $9,925; credit Cash $9,925.
Debit Bond Interest Expense $10,175; credit Cash $9,925; credit Discount on Bonds Payable $250.
Debit Bond Interest Expense $9,925; debit Discount on Bonds Payable $250; credit Cash $10,175.
Debit Bond Interest Expense $19,850; credit Cash $19,850.
On January 1, a company issued and sold a $397,000, 5%, 10-year bond payable, and received proceeds of $392,000. 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:
Explanation / Answer
To record first payment,
Credit cash = ($397,000 × 5%) / 2 = $9,925
Credit Discount on bonds payable = ($397,000 - $392,000) / 20 semi annum = $250
Debit bond interest expense = $9,925 + $250 = $10,175
Hence, the correct answer is Debit Bond Interest Expense $10,175; credit Cash $9,925; credit Discount on Bonds Payable $250.