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 was $300 ($15,000 - $14,700). It is amortized over 12 semiannual periods, so the amortization per period is $25 ($300 ÷ 12). At the end of the first interest payment, half a period has passed, so only half of the amortization amount will have been recorded. Therefore, the balance in the Discount Account will be a debit balance of $275 ($300 - $25).

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