On January 1, Sewell Corporation issues $2,000,000, 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, $120,000.
B) debit to Interest Expense, $240,000.
C) credit to Discount on Bonds Payable, $16,000.
D) credit to Discount on Bonds Payable, $8,000.

Question

Quizplus · Accepted Answer

The bond discount of $80,000 ($2,000,000 x 4%) is amortized over 5 years, resulting in an annual amortization of $16,000.

On January 1, Sewell Corporation Issues $2,000,000, 5-Year, 12% Bonds