Webster Company issues $1,000,000 face value, 6%, 5-year bonds payable on 31 December 2013. Interest is paid semiannually each 30 June and 31 December. The bonds sell at a price of 97; Webster uses the straight-line method of amortizing bond discount or premium.
-Webster's entry at 30 June 2014, to record the first semiannual payment of interest and amortization of discount on the bonds includes a:
A) Debit to Bond Interest Expense of $30,000.
B) Credit to Cash of $33,000.
C) Debit to Discount on Bonds Payable of $3,000.
D) Debit to Bond Interest Expense of $33,000.

Question

Quizplus · Accepted Answer

Semiannual interest payments on bonds involve both the payment of interest and the amortization of any bond discount. The debit to Bond Interest Expense reflects the total amount of interest and discount amortization to be expensed. Therefore, option A is only partially correct as it only accounts for the interest expense. Option B is incorrect as it does not reflect the amortization of bond discount. Option C is incorrect as it only accounts for the amortization of bond discount and not the interest expense. Option D is the best choice as it reflects both the interest expense and discount amortization.

Webster Company Issues $1,000,000 Face Value, 6%, 5-Year Bonds Payable