201. On January 1, Health Corporation issues $3,000,000, 10-year, 8% bonds at 96 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a A) debit to Interest Expense, $120,000. B) debit to Interest Expense, $240,000. C) credit to Discount on Bonds Payable, $12,000. D) credit to Discount on Bonds Payable, $24,000.

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Quizplus · Accepted Answer

The bond discount is $120,000 ($3,000,000 x 4%). Over 10 years, the annual amortization is $12,000 ($120,000 / 10). Thus, the entry includes a credit to Discount on Bonds Payable for $12,000.