Question

On January​ 1, 2017, Streuly Sales issued $34,000 in bonds for $18,700. These are six−year bonds with a stated rate of 9​% and pay semiannual interest. Streuly Sales uses the straight−line method to amortize the Bond Discount. Immediately after the issue of the​bonds, the ledger balances appeared as​ follows:

Bonds Payable
34,000
Discount on Bonds Payable
15,300

After the second interest payment on December​ 31, 2017, what is the balance of Discount on Bonds​ Payable? (Round any intermediate calculations to two decimal​ places, and your final answer to the nearest​ dollar.)

A. debit of $14,025
B. debit of $16,575
C. credit of $15,300
D. debit of $12,750

Answer 1

$12,750.

Step-by-step explanation:

Since Streuly Sales uses the straight−line method to amortize the Bond Discount, the annual discount on bonds payable can be calculated as follows:

Annual discount on bond payable = Discount on Bonds Payable ÷ Bodn duration = 15,300 ÷ 6 = 2,550

Since the interest is paid semiannually, it means the discount on bond will also be paid semiannually as calculated below:

Semiannual discount on bond payable = 2,550 ÷ 2 = $1,275

As two will be paid during 2017, one on June 30 and another on December 31, the the balance of Discount on Bonds​ Payable after the second interest payment on December​ 31, 2017 is calculated as follows:

Balance of Discount on Bonds​ Payable = $15,300 - (1,275 * 2) = $12,750

Therefore, the the balance of Discount on Bonds​ Payable after the second interest payment on December​ 31, 2017 is $12,750.