A corporation issues $200,000, 10%, 5-year bonds on January 1, 2014, for $191,600. 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, 2014's adjusting entry is
A) $21,680.
B) $20,000.
C) $18,320.
D) $1,680.

Question

Quizplus · Accepted Answer

The bond discount is $200,000 - $191,600 = $8,400. Using the straight-line method, the annual amortization is $8,400 / 5 = $1,680. The bond interest expense is the annual interest payment of $20,000 plus the annual amortization of $1,680, totaling $21,680.

A Corporation Issues $200,000, 10%, 5-Year Bonds on January 1