Question

On January 1, 2016, Legion Company sold $200,000 of 10% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $177,000, priced to yield 12%. Legion records interest at the effective rate. Legion should report bond interest expense for the six months ended June 30, 2016, in the amount of:_________.A. $8,850B. $10,000C. $10,620D. $12,000

Answer 1

C. $10,620

Step-by-step explanation:

January 1, 2016

Dr Cash 177,000

Dr Discount on bonds payable 23,000

Cr Bonds payable 200,000

discount amortization = ($177,000 x 6%) - $10,000 = $10,620 - $10,000 = $620

June 30, 2016, first coupon payment

Dr Interest expense 10,620

Cr Cash 10,000

Cr Discount on bonds payable 620