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Austin Corporation issues $6,000,000 of 10%,10-year bonds,dated December 31,Year 1.The bonds are issued on April 30,Year 2,at 100 plus accrued interest.Interest on the bonds is payable semiannually each June 30 and December 31.
-The journal entry made by Austin Corporation to record the first semiannual interest payment on the bonds includes:
A)A debit to Bond Interest Expense of $300,000.
B)A debit to Bond Interest Payable of $100,000.
C)A debit to Bond Interest Expense of $100,000.
D)A debit to Bond interest Expense of $200,000.

Question

Quizplus · Accepted Answer

The first semiannual interest payment would be for six months, so the amount would be $6,000,000 x 10% x 6/12 = $300,000. However, $100,000 of interest has already been accrued from January 1 to April 30. Therefore, the entry would be a debit to Bond Interest Expense for $100,000 (the accrued interest) and a debit to Cash for $200,000 (the current interest payment). There is no account called Bond Interest Payable.

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