Answer:
The correct answer is option (D).
Explanation:
According to the scenario, the computation of the given data are as follows:
Total amount = $1,121,000
Bonds percentage = 12%
Bonds year = 10 years
Time period Feb.28 - Aug.31 = 6 months
Total interest expense = Cash payment of interest + Amortization of discount
So, Cash payment of interest = $1,121,000 × 12% × 6÷12
= $67,260
Amortization of discount = ( $1,121,000 × 1÷100) ÷ 20 = $560.5
So, Total interest expense = $67260 + $560.5 = $67,820.5 or $67,821
Hence, The journal entry is shown below.
Aug.31 Interest Expense A/c Dr $67,821
To Cash A/c $67,260
To Amortization of discount A/c $561
( Being interest expense is recorded)
