A corporation issues $300,000, 10%, 5-year bonds on January 1, 2020, for $287,400.Interest is paid annually on January 1.If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2020's adjusting entry is
A)$32,520.
B)$30,000.
C)$27,480.
D)$2,520.

Question

Quizplus · Accepted Answer

The bond discount is $12,600 ($300,000 - $287,400). Using the straight-line method, the annual amortization of the discount is $2,520 ($12,600 / 5 years). The annual interest expense is the cash interest payment ($30,000) plus the annual amortization of the discount ($2,520), totaling $32,520.

A Corporation Issues $300,000, 10%, 5-Year Bonds on January 1