Warner Company issued $4,000,000 of 6%, 10-year bonds on one of its interest dates for $3,454,800 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a
A) debit to Bond Interest Expense for $240,000.
B) credit to Cash for $276,385.
C) credit to Discount on Bonds Payable for $36,384.
D) debit to Bond Interest Expense for $320,000.

Question

Quizplus · Accepted Answer

The correct answer is C because the discount on bonds payable is amortized over the life of the bonds using the effective-interest method. The amount of discount amortization for the first interest payment date is $36,384.

Warner Company Issued $4,000,000 of 6%, 10-Year Bonds on One