Question

On January 1, Hurley Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on January 1. The entry on January 1 to record payment of bond interest assuming amortization of bond discount used the straight-line method will include a:_______.a. credit to Discount on Bonds Payable $4,000. b. credit to Cash $60,000. c. debit to Interest Expense $60,000. d. debit to Interest Expense $30,000.

Answer 1

Answer:

b. credit to Cash $60,000.

Explanation:

Given that:

Hurley Corporation issues the principal amount of $500,000

Time = 5 years

Rate = 12%  at 96  with interest payable on January 1

Discount on issue  =500000 × (1 - 0.96) = 20000

Annual discount  amortization= 20000/5 = 4000                  

Interest payable  = 500000× 12% =  60000

From the information given in the question; we can have a journal entry to determine the what the straight-line method will include.

So, let have a look at the table below:

Discount on issue                     20000                                      

Annual discount                        4000

amortization

                                                     Debit                            Credit

Interest expense                         64000

Discount on Bonds payable                                            4000

Interest payable                                                               60000

Now; The January 1 entries will now be as follows:

                                                    Debit                        Credit

Interest payable                           60,000

Cash                                                                                60,000

Thus; The entry on January 1 to record payment of bond interest assuming amortization of bond discount used the straight-line method will include a: Credit to cash  $60,000