Question

On January 1, Hurley Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on January 1. The entry on January 1 to record payment of bond interest assuming amortization of bond discount used the straight-line method will include a:_______.a. credit to Discount on Bonds Payable $4,000. b. credit to Cash $60,000. c. debit to Interest Expense $60,000. d. debit to Interest Expense $30,000.

Answer 1

b. credit to Cash $60,000.

Step-by-step explanation:

Given that:

Hurley Corporation issues the principal amount of $500,000

Time = 5 years

Rate = 12% at 96 with interest payable on January 1

Discount on issue =500000 × (1 - 0.96) = 20000

Annual discount amortization= 20000/5 = 4000

Interest payable = 500000× 12% = 60000

From the information given in the question; we can have a journal entry to determine the what the straight-line method will include.

So, let have a look at the table below:

Discount on issue 20000

Annual discount 4000

amortization

Debit Credit

Interest expense 64000

Discount on Bonds payable 4000

Interest payable 60000

Now; The January 1 entries will now be as follows:

Debit Credit

Interest payable 60,000

Cash 60,000

Thus; The entry on January 1 to record payment of bond interest assuming amortization of bond discount used the straight-line method will include a: Credit to cash $60,000