The Great Lakes Company issues $503,000 of 10%,10-year bonds at 107 on March 31,2018.The bond pays interest on March 31 and September 30.Assume that the company uses the straight-line method for amortization.The journal entry to record the first interest payment on September 30,2018 includes a ________.(Round your intermediate answers to the nearest dollar.)

Question

Quizplus · Accepted Answer

The total interest payment for the year is $50,300 (($503,000 x 10%)/2), which means the semi-annual interest payment is $25,150. Since the company uses the straight-line method, the amortization amount is $3,050 ($30,500/10).

On September 30, 2018, the journal entry would be:

Debit: Interest Expense $23,389 (($503,000 x 7.5%)/2)
Debit: Premium on Bonds Payable $1,761 ($25,150 - $23,389)
Credit: Cash $25,150

Therefore, the correct answer is C, debit to Interest Expense for $23,389.

The Great Lakes Company Issues $503,000 of 10%,10-Year Bonds at 107