On January 2, 2017, $100,000 of 10%, 10-year bonds were issued for $96,000. The
ID: 2528798 • Letter: O
Question
On January 2, 2017, $100,000 of 10%, 10-year bonds were issued for $96,000. The $4,000 discount was charged to Interest Expense. The bookkeeper, Mark Landis, records interest only on the interest payment dates of January 1 and July 1.
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Account Titles and Explanation
Debit
Credit
On January 2, 2017, $100,000 of 10%, 10-year bonds were issued for $96,000. The $4,000 discount was charged to Interest Expense. The bookkeeper, Mark Landis, records interest only on the interest payment dates of January 1 and July 1.
Explanation / Answer
Total semi annual periods = 10*2 = 20 periods
Semi annual discount on Bonds = 4000/20 = 200
Net income will be reduced by 5200 as interest expense.
Necessary journal entry to correct error:
Interest Expense Dr 5200
Cash Cr 5000 (100000*10%*1/2)
Discount on Bond Payable Cr 200 (4000/20)
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