Question

On January 1, 2020, NoDice Corporation issues $540,000, 5-year, 12% bonds for $529,000. Interest is paid semiannually on January 1 and July 1. NoDice Corporation uses the straight-line method of amortization. The company's fiscal year ends on December 31. The amount of bond interest expense on July 1, 2020 is:

Answer 1

Dr Interest expense $33,500

Cr Discount on bonds payable $1,100

Cr Cash $32,400

Step-by-step explanation:

Discount on bonds payable=$540,000-$529,000=$11,000

Amortization of discount=discount on bonds issue/period of the bond

period to maturity of the bond is 5 years *2 =10 since the bond pays interest semi-annually

Amortization =$11,000/10=$1,100

Semi-annual interest=$540,000*12%/2=$32,400

the bond semi-annual interest expense=discount amortization+interest payment

the bond semi-annual interest expense=$32,400+$1,100=$33,500