Trigg Corporation issued $200,000 of 20-year,6 percent bonds at 98 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.The entry to record the bond interest expense on the next interest payment date is:

Question

Quizplus · Accepted Answer

The interest on the bonds is calculated at a rate of 6% per annum and the bonds are issued at a discount of 2% (98% of face value). This means that the effective interest rate for the bonds is higher than 6%. Since the straight-line method of amortization is used, the unamortized bond discount at the time of the interest payment date is $100 ($2,000 per year for 20 years, divided by 40 semi-annual periods). Therefore, the entry to record the bond interest expense would be:

Bond Interest Expense = $6,000 per year / 2 = $3,000

Unamortized Bond Discount = $100

Cash = $6,000

This is the correct entry as shown in choice A).

Trigg Corporation Issued $200,000 of 20-Year,6 Percent Bonds at 98