Question

On January 1, 2010, the Baker Corporation lssued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. The bonds pay interest semannualy on June 30 and December 31 and the maturty dath is December 31,2014 . Baker reconds straight-line amortizason of the bond discount. The bond interest expense as of June 30 th, 2010 , is (H.NT. Recreate the joumal entry to record the interest payment and the amortialion of the bond discount) a. 52,600 b. 32,900 c. $4,000 d. $400

Answer 1

The bond interest expense as of June 30th, 2010, would be $4,722. The journal entry to record the interest payment and the amortization of the bond discount is:

• Debit: Bond Interest Expense - $4,722,
• Credit: Cash (Interest Payment) - $2,500,
• Credit: Discount on Bonds Payable (Amortization) - $2,222.

Step-by-step explanation:

The bond interest expense as of June 30th, 2010, can be calculated by determining the amount of interest expense from January 1st, 2010, to June 30th, 2010. Since the bonds pay interest semiannually, the interest expense for the first 6 months would be:

= ($50,000 * 0.10) * (6/12)

= $2,500

However, since the bonds were sold at a discount ($46,000), the discount must be amortized over the life of the bond. Using the straight-line method, the bond discount amortized for the first 6 months would be:

= ($50,000 - $46,000) * (6/54)

= $2,222.

Therefore, the bond interest expense as of June 30th, 2010, would be:

= $2,500 + $2,222

= $4,722.

The journal entry to record the interest payment on June 30th, 2010, and the amortization of the bond discount would be:

• Debit: Bond Interest Expense - $4,722
• Credit: Cash (Interest Payment) - $2,500
• Credit: Discount on Bonds Payable (Amortization) - $2,222