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

Question

Quizplus · Accepted Answer

DThe correct entries include crediting Discount on Bonds Payable for both $12,000 and $24,000. The bond's issue price was 96% of its face value, indicating a discount. The straight-line method evenly divides the discount over the bond's life. For a $3,000,000 bond issued at 96, the total discount is $3,000,000 - ($3,000,000 * 0.96) = $120,000. Over 10 years, the annual amortization is $120,000 / 10 = $12,000, which explains the credit to Discount on Bonds Payable for $12,000. The option with $24,000 does not align with the calculation and seems to be a distractor, as it does not match the straight-line amortization calculation for the given scenario.

On January 1, Health Corporation Issues $3,000,000, 10-Year, 8% Bonds