Question

Mountaintop Sports Inc. issued $200,000 of 10-year, 6% bonds, with interest payable semiannually on June 30 and December 31 each year. The bonds were sold at 100. Assuming Mountaintop Sports has a December 31 fiscal year end, what amount should be recorded as interest expense in the journal entry made each six months?

Answer 1

Answer:

The amount should be recorded as interest expense in the journal entry made each six months is $6,000

Explanation:

In order to calculate the amount should be recorded as interest expense in the journal entry made each six months, we have to calculate the interest annually with the following formula according to the given data:

interest annually=Issue Price of Bond×rate of interest

                           =$200,000 ×6%

                           =$12,000

Therefore, the interest semiannually would be calculated as follows:

interest semiannually=$12,000/2=$6,000

The amount should be recorded as interest expense in the journal entry made each six months is $6,000