Crosson Company uses the straight-line method of amortization and had a ten-year, 12 percent, $1,000,000 bond issue outstanding that had been sold at a $12,000 discount in 2015. The bonds pay interest on June 30 and December 31, and the company's fiscal year end is December 31. The journal entry on June 30, 2018, will include:
A)a $6,000 credit to Cash.
B)a $1,200 credit to Premium on Bonds Payable.
C)a $58,800 debit to Interest Expense
D)a $600 credit to Discount on Bonds Payable.

Question

Quizplus · Accepted Answer

The correct answer involves understanding how the straight-line method of amortization works for bond discounts. The total discount of $12,000 is amortized evenly over the bond's ten-year life, resulting in an annual amortization of $1,200 ($12,000 / 10 years). Since interest is paid semi-annually, the semi-annual amortization amount is $600 ($1,200 / 2). This amount is credited to the Discount on Bonds Payable account to reflect the decrease in the discount over time.

Crosson Company Uses the Straight-Line Method of Amortization and Had