On January 1, Sewell Corporation issues $3,000,000, 5-year, 12% bonds at 96 with interest payable on January 1.The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a
A)debit to Interest Expense, $180,000.
B)debit to Interest Expense, $360,000.
C)credit to Discount on Bonds Payable, $24,000.
D)credit to Discount on Bonds Payable, $12,000.

Question

Quizplus · Accepted Answer

The bond discount is $120,000 ($3,000,000 x 4%). Over 5 years, the annual amortization is $24,000 ($120,000 / 5).

On January 1, Sewell Corporation Issues $3,000,000, 5-Year, 12% Bonds