On January 1, 2015, Carter Sales issued $15,000 in bonds for $14,700. They were 6-year bonds with a stated rate of 9%, and pay semiannual interest. Carter Sales uses the straight-line method to amortize the Bond Discount. Immediately after issue of the bonds, the ledger balances appeared as follows: After the first interest payment on June 30, 2015, what will be the balance in the Discount Account?

Question

On January 1, 2015, Carter Sales issued $15,000 in bonds for $14,700. They were 6-year bonds with a stated rate of 9%, and pay semiannual interest. Carter Sales uses the straight-line method to amortize the Bond Discount. Immediately after issue of the bonds, the ledger balances appeared as follows:  After the first interest payment on June 30, 2015, what will be the balance in the Discount Account?

Quizplus · Accepted Answer

The bond discount of $300 ($15,000 - $14,700) would be amortized over the life of the bond using the straight-line method. Since there are six years and semiannual payments, the annual amortization would be $300 / 6 = $50, and the semiannual amortization would be $25.

After the first interest payment, the Discount Account balance would decrease by the amount of the semiannual amortization. Therefore, the Discount Account balance would be a debit of $275 ($300 - $25).

On January 1, 2015, Carter Sales Issued $15,000 in Bonds