Use the following information for questions 46 through 48.
Chang Corporation issued $4,000,000 of 9%, ten-year convertible bonds on July 1, 2014 at 96.1 plus accrued interest. The bonds were dated April 1, 2014 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2015, $800,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.
-If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2014?

Question

Quizplus · Accepted Answer

The interest expense includes the cash interest payment and the amortization of the bond discount. The cash interest payment for six months is $180,000 ($4,000,000 x 9% x 1/2). The bond discount is $156,000 ($4,000,000 x (100% - 96.1%)), and the semiannual amortization is $7,800 ($156,000 / 20 periods). Therefore, the interest expense is $180,000 + $7,800 = $187,800. However, since the question asks for the amount on October 1, 2014, the interest payable credited at issuance ($90,000) should be subtracted, resulting in $94,000.

Use the Following Information for Questions 46 Through 48