Austin Corporation issues $6,000,000 of 10%, 10-year bonds, dated 31 December, Year 1. The bonds are issued on 30 April, Year 2, at 100 plus accrued interest. Interest on the bonds is payable semiannually each 30 June and 31 December.
-The entry to record the issuance of bonds payable on 30 April, Year 2, includes:
A) A credit to Premium on Bonds Payable of $200,000.
B) A debit to Cash of $150,000.
C) A debit to Bond Interest Expense of $200,000.
D) A credit to Bond Interest Payable of $200,000.

Question

Quizplus · Accepted Answer

The bonds are issued at 100 plus accrued interest. The accrued interest from 31 December, Year 1 to 30 April, Year 2 is $200,000 (calculated as $6,000,000 * 10% * 4/12). This amount is credited to Bond Interest Payable.

Austin Corporation Issues $6,000,000 of 10%, 10-Year Bonds, Dated 31