Question

On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. 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: Multiple Choice Debit Bond Interest Expense $28,000; credit Cash $28,000. Debit Bond Interest Expense $14,000; credit Cash $14,000. Debit Bond Interest Expense $13,800; debit Discount on Bonds Payable $200; credit Cash $14,000. Debit Bond Interest Expense $14,000; debit Discount on Bonds Payable $200; credit Cash $14,200. Debit Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds Payable $200.

Answer 1

Answer:

Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds Payable $200.

Explanation:

The journal entry is shown below:

Bond interest expense $14,200

         To Discount on bond payable $14,000

         To Cash $200

(Being the first interest payment is made for cash is recorded)

The computation is shown below:

= $400,000 × 7% × 6 months ÷ 12 months

= $14,000

The discount on bond payable is

= $400,000 - $396,000

= $4,000

This $4,000 would be charged for 10 years So for one year it is 200 in case of semi annual basis

As we debited the interest expense as it increased the expenses and at the same time it also decrease the cash balance so it would be credited along with it the discount on bond payable is credited