On January 1, 2018, Statewide Sales issued $29,000 in bonds for $20,700. These are six-year bonds with a stated rate of 12% and pay semiannual interest. Statewide Sales uses the straight-line method to amortize the Bond Discount. Immediately after the issue of the bonds, the ledger balances appeared as follows: Discount on Bonds Payable
After the second interest payment on December 31, 2018, what is the balance of Discount on Bonds Payable? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Question

On January 1, 2018, Statewide Sales issued $29,000 in bonds for $20,700. These are six-year bonds with a stated rate of 12% and pay semiannual interest. Statewide Sales uses the straight-line method to amortize the Bond Discount. Immediately after the issue of the bonds, the ledger balances appeared as follows:  Discount on Bonds Payable
 After the second interest payment on December 31, 2018, what is the balance of Discount on Bonds Payable? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Quizplus · Accepted Answer

The total discount on bonds payable is $8,300 (the difference between $29,000 and $20,700). The bond matures in six years, meaning there will be 12 semiannual interest payments. To amortize the discount using the straight-line method, we divide the total discount by the number of interest periods:
$8,300 / 12 = $691.67
After the first interest payment, we subtract the amount of amortization from the discount on bonds payable balance:
$8,300 - $691.67 = $7,608.33 (rounded to $7,608)
After the second interest payment, we repeat the same process:
$7,608 - $691.67 = $6,916.33 (rounded to $6,917)
Therefore, the balance of Discount on Bonds Payable after the second interest payment is a debit of $6,917. 
Option C is the correct choice.

On January 1, 2018, Statewide Sales Issued $29,000 in Bonds