Question

On January​ 1, 2019, Commercial Equipment Sales issued $ 29 comma 000 in bonds for $ 21 comma 700. These are sixminusyear bonds with a stated interest rate of 10​%, and pay semiannual interest on June 30 and December 31. Commercial Equipment Sales uses the straightminusline method to amortize the Bond Discount. What amount is debited to Interest Expense on June​ 30, 2019?

Answer 1

$2,058.33

Step-by-step explanation:

bond's face value = $29,000

bond's market value = $21,700

interest rate = 10%

n = 6 x 2 coupons = 12

discount on bonds payable = $29,000 - $21,700 = $7,300

discount amortized per coupon payment = $7,300 / 12 = $608.33

total interest expense = ($29,000 x 10% x 1/2) + $608.33 = $1,450 + $608.33 = $2,058.33

the journal entry to record the coupon payment in June 30,2019:

Dr Interest expense 2,058.33

Cr Cash 1,450

Cr Discount on bonds payable 608.33