Question

On January 1, a company issues bonds dated January 1 with a par value of $620,000. The bonds mature in 3 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The bonds are sold for $596,000. The journal entry to record the first interest payment using straight-line amortization is: Multiple Choice Debit Interest Expense $17,700; debit Discount on Bonds Payable $4,000; credit Cash $21,700. Debit Interest Payable $21,700; credit Cash $21,700. Debit Interest Expense $25,700; credit Discount on Bonds Payable $4,000; credit Cash $21,700. Debit Interest Expense $21,700; credit Premium on Bonds Payable $4,000; credit Cash $17,700. Debit Interest Expense $21,700; credit Cash $21,700.

Answer 1

Debit Interest Expense $25,700; credit Discount on Bonds Payable $4,000; credit Cash $21,700.

Step-by-step explanation:

The journal entry to record the first interest payment is given below:

Bond interest expense $25,700

To Discount on bond payable (($620,000 - $596,000) ÷ 6 years) $4,000

To Cash ($620,000 × 7% ÷ 2) $21,700

(being the first interest payment is recorded)

Here interest expense is debited as it increased the expense and credited the discount and cash as it decreased the liabilities and assets