Question

On January 1 of the current year, the Queen Corporation issued 7% bonds with a face value of $70,000. The bonds are sold for $67,900. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, five years from now. Queen records straight-line amortization of the bond discount. Determine the bond interest expense for the year ended December 31. Select the correct answer. $408 $2,100 $5,320 $4,900

Answer 1

Answer:

$5,320

Explanation:

the journal entry to record the issuance of the bonds

January 1

Dr Cash 67,900

Dr Discount on bonds payable 2,100

    Cr Bonds payable 70,000

the journal entry to record the first and second coupon payments

June 30 and December 31, first and second coupon payment

Dr Interest expense 2,660

    Cr Cash 2,450

    Cr Discount on bonds payable 210

Amortization of bonds payable = $2,100 / 10 coupons = $210 per coupon

total interest expense for the year = $2,660 x 2 = $5,320