A corporation issues ¥1,000,000,000, 10%, 5-year bonds on January 1, 2014, for $958,000,000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2014's adjusting entry is
A) ¥108,400,000.
B) ¥100,000,000.
C) ¥91,600,000.
D) ¥8,400,000.

Question

Quizplus · Accepted Answer

The bond discount is ¥1,000,000,000 - $958,000,000 = ¥42,000,000. Using the straight-line method, the annual amortization of the discount is ¥42,000,000 / 5 = ¥8,400,000. The annual interest expense is the coupon payment plus the amortization of the discount: ¥100,000,000 + ¥8,400,000 = ¥108,400,000.

A Corporation Issues ¥1,000,000,000, 10%, 5-Year Bonds on January 1