A corporation issues $300,000, 8%, 5-year bonds on January 1, 2017, for $312,600. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized in December 31, 2017's adjusting entry is
A)$21,480.
B)$24,000.
C)$26,520.
D)$2,520.

Question

Quizplus · Accepted Answer

The bond premium is $12,600 ($312,600 - $300,000). Using the straight-line method, the annual amortization of the premium is $2,520 ($12,600 / 5 years). The annual interest payment is $24,000 ($300,000 * 8%). Therefore, the bond interest expense is $21,480 ($24,000 - $2,520).

A Corporation Issues $300,000, 8%, 5-Year Bonds on January 1