Webster's entry at June 30, 2012, to record the first semiannual payment of interest and amortization of discount on the bonds includes a:
A) Debit to Bond Interest Expense of $30,000.
B) Credit to Cash of $33,000.
C) Debit to Discount on Bonds Payable of $3,000.
D) Debit to Bond Interest Expense of $33,000.

Question

Quizplus · Accepted Answer

The semiannual payment of interest and amortization of discount on the bonds would reduce the Discount on Bonds Payable account and increase the Bond Interest Expense account. This is because the interest expense would be recognized at the face value of the bonds ($1,000,000 x 6% x 6/12 = $30,000) and the discount amortization would also be recognized ($3,000 = $33,000 - $30,000). Since the question asks for the entry to record both the interest and discount amortization, the best choice is D, which records both the interest expense and the discount amortization in the same account (Bond Interest Expense). Therefore, the correct entry is:

Debit Bond Interest Expense $33,000
Credit Cash $33,000

Webster's Entry at June 30, 2012, to Record the First