Answer:
Debit interest expense - - - - $15,351.72
Credit cash - - - - - - - $14,000
Discount payable on bond - - - - - $1,351.72
Explanation:
Parker value =$400,000
contract rate = 7% = 0.07
Market rate = 8%
Discounted bond = $383,793
First interest payment using straight lime amortization;
Debit interest expense :
8% of $383,793
0.08 × $383,793 = $30,703.44
$30,703.44 ÷ 2 = $15,351.72(semi annually)
Credit cash;
7% of $400,000
0.07 × $400,000 = $28,000
$28,000÷2 = $14,000(semi annually)
Discount on bond payable ;
Debit interest expense - Credit cash
$15,351.72 - $14,000 =$1,351.72= Discount amortization
