On January 2, 2017, $100,000 of 10%, 10-year bonds were issued for $96,600. The

Question

On January 2, 2017, $100,000 of 10%, 10-year bonds were issued for $96,600. The $3,400 discount was charged to Interest Expense. The bookkeeper, Mark Landis, records interest only on the interest payment dates of January 1 and July 1.

(a1)

Account Titles and Explanation

Debit

Credit

On January 2, 2017, $100,000 of 10%, 10-year bonds were issued for $96,600. The $3,400 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

Solution a1:

As discount of $3,400 was directly charged to interest expense instead of staright line amortization, it will result in decrease in net operating income of 2017 due to excess amortization.

Discount charged to interest expense = $3,400

Discount to be charged to interest expense (Straight line amortization) = $3,400 / 10 = $340

Excess amortization = $3,400 - $340 = $3,060

Therefore net operating income of 2017 will decrease by $3,060 due to excess amortization.

Adjusting Journal Entries Particulars Debit Credit Discount on bonds Dr $3,060.00         To Interest Expense $3,060.00 (Being excess discount amortized reversed)

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.