Question

Sanders Corporation issued $ 470,000 of 9​%, ​10-year bonds payable at a price of 91. The market interest rate at the date of issuance was 10​%, and the bonds pay interest semiannually. The journal entry to record the first semiannual interest payment using the​ effective-interest amortization method is :

A. Date Accounts and Explanation Debit Credit Interest Expense 23,735 Discount on Bonds Payable 235 Cash 23,500
B. Date Accounts and Explanation Debit Credit Interest Expense 27,307 Discount on Bonds Payable 3,807 Cash 23,500
C. Date Accounts and Explanation Debit Credit Interest Expense 24,957 Discount on Bonds Payable 3,807 Cash 21,150
D. Date Accounts and Explanation Debit Credit Interest Expense 21,385 Discount on Bonds Payable 235 Cash 21,150

Answer 1

D. Date Accounts and Explanation Debit Credit Interest Expense 21,385 Discount on Bonds Payable 235 Cash 21,150

Step-by-step explanation:

The journal entry is shown below:

Interest expense $21,385

To Discount on bond payable $235

To Cash $21,150

(Being the interest expense is recorded)

The computation is given below:

The interest expense is

= $470,000 ÷ 100 × 91 × 10% ÷ 12 months × 6 months

= $21,385

The cash is

= $470,000 × 9% ÷ 12 months × 6 months

= $21,150

And, the remaining balance is credited to discount on note payable

We simply debited the interest expense as it increased the expenses and credited the cash as it reduced the assets plus the remaining amount is credited to discount on bond payable