Lassen Corporation issued ten-year term bonds on January 1,20x5,with a face value of $800,000.The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $690,960 to yield an effective annual rate of 8 percent.The effective interest method of amortization is to be used.The entry to be recorded on December 31,20x5,for the payment of interest (rounded to the nearest dollar)and the amortization of discount is:

Question

Quizplus · Accepted Answer

The semi-annual interest payment is $800,000 x 6%/2 = $24,000. The amortization of discount for the period is ($690,960 - $800,000 x 4% x 6/12) - ($690,960 - $800,000 x 4% x 0/12) = $8,040.

The entry to record the interest payment and discount amortization on December 31, 20x5, is:

Interest Expense	   $8,040
Discount on Bonds Payable   $1,960 ($24,000 - $22,040)
Cash	                                $24,000

Therefore, the correct answer is B.

Lassen Corporation Issued Ten-Year Term Bonds on January 1,20x5,with a Face