Question

On January 1, 2020, Milwaukee Corporation issued $3,000,000 of its 20-year, 8% bonds payable at 96. Interest is payable annually on January 1. The entry to accrue interest on December 31, 2020 would include a

Answer 1

Answer:

It will include credit to discount on bonds payable for $6,000

Explanation:

Solution

Given that

Issue price of bond = $3,000,000 * 96%

Issue of bond =$ 2,880,000

Thus,

The discount of bond payable = $3,000,000 - $ 2,880,000

=$120,000

Amortization of discount of bond payable = $120,000/20

=$6,000

Now,

We prepare an entry to accrue interest which is given below:

Entry to accrue interest

Date            Account Titles and Explanation       Debit          Credit

31-12-2020        Interest expense                         $246,000

                  discount of bond payable                                     $6,000

                          Interest payable                                             $240,000

                 (To record the interest accrued)