On January 1, 2014, Bentley Company issued £25,000,000, 5-year, 7% bonds, were issued for £24,625,000. Interest is paid annually on December 31. Bentley uses the straight-line method to amortize discount on bonds payable The December 31, 2014 journal entry to record the cash payment to bondholders and amortization of discount will include

Question

Quizplus · Accepted Answer

The annual interest payment is £1,750,000 (7% of £25,000,000). The discount of £375,000 (£25,000,000 - £24,625,000) is amortized over 5 years, resulting in £75,000 per year. Therefore, the interest expense is £1,750,000 + £75,000 = £1,825,000.

On January 1, 2014, Bentley Company Issued £25,000,000, 5-Year, 7