The entry to record the semiannual payment and amortization of the discount using the straight-line method on a 10%,$100,000,5-year bond issued at 97 would be to:

Question

Quizplus · Accepted Answer

The semiannual coupon payment can be calculated as $100,000 x 10% x 6/12 = $5,000.

Since the bond was issued at a discount, the discount needs to be amortized over the life of the bond. The total discount is $100,000 - $97,000 = $3,000, and it needs to be amortized over 10 semiannual periods ($3,000 / 10 = $300).

Using the straight-line method, the amount of discount to amortize each period will be the same. Therefore, the journal entry to record the semiannual payment and amortization of the discount would be:

Debit Bond Interest Expense $5,300 (=$5,000 + $300)
Credit Cash $5,000
Credit Discount on Bonds Payable $300

This entry reflects the payment of the coupon interest of $5,000 and the amortization of $300 of discount, resulting in a total interest expense of $5,300 for the period. The discount on bonds payable account will be reduced to $2,700 ($3,000 - $300) at the end of the period.

The Entry to Record the Semiannual Payment and Amortization of the Discount