Asked by Alana Burns on Jul 09, 2024
Verified
On January 1,a company issued 10-year,10% bonds payable with a par value of $500,000,and received $442,647 in cash proceeds.The market rate of interest at the date of issuance was 12%.The bonds pay interest semiannually on July 1 and January 1.The issuer uses the straight-line method for amortization.Prepare the issuer's journal entry to record the first semiannual interest payment on July 1.
Straight-Line Method
A depreciation technique that allocates an equal amount of depreciation expense over the useful life of an asset.
Semiannual Interest
Interest payments made twice a year on investments or loans.
Bond Payable
A long-term liability where a borrower agrees to pay back a specified sum of money plus interest to bondholders at future dates.
- Develop the skill to record bond interest payment transactions in journals utilizing various amortization techniques.
Verified Answer
Cash payment: $500,000 * 10% * 1/2 year = $25,000.00Discount amortized: ($500,000 - $442,647)/20 semiannual periods = $2,867.65
Interest expense: $25,000.00 + $2,867.65 = $27,867.65
Learning Objectives
- Develop the skill to record bond interest payment transactions in journals utilizing various amortization techniques.
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