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Straight-line method to amortize discount on the bonds

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Reference no: EM132204010

On February 1st, Starr Company issued $500,000, 5-year, 4% bonds. The market rate at the time of the sale was greater than 4% so the bonds were sold at 94. Interest is payable July 31th and January 31st. The entry to record the sale of the bonds would include a:

Debit to Discount on Bonds Payable for $30,000.

Debit to Cash for $500,000.

Credit to Cash for $470,000.

Credit to Bonds Payable for $470,000.

Part B - Refer to Part A. Starr Company uses the straight-line method to amortize discount on the bonds, the entry to record the first interest payment would include:

Credit to Cash for $20,000.

Debit to Interest Expense for $13,000.

Debit to Interest Expense for $6,000.

Debit to Discount on Bonds Payable for $3,000.

Reference no: EM132204010

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