neet G Google AppleiCloud D Yahoo D Bing D Wikipedia D Facebook D Twitter D Link
ID: 2561053 • Letter: N
Question
neet G Google AppleiCloud D Yahoo D Bing D Wikipedia D Facebook D Twitter D Linkedin D The Weather Channel D Yelp D Tris ers 10 and 11 M/C Help Save&Exit; Sub On January 1 of Year 1, Congo Express Airways issued $2,250,000 of 5% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $2,030,000 and the market rate of interest for similar bonds is 6%. The bond premium or discount is being amortized at a rate of $7.333 every six months. The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be: Multiple Choice $127166. $97,834 $63,583. 3Explanation / Answer
Amortization amount per period of six months=$7,333
Bond interest=5%=0.05
Market interest=6%
Since bond interest is lower than the market interest, the bond would be issued at discount.
Semi annual interest=(0.05*2250000)/2= $ 56,250
Date
Account name
Debit
Credit
July1, year1
Interest Expense
$63,583
Discount on Bond payable
$7,333
Cash
$ 56,250
Dec 31, year1
Interest Expense
$63,583
Discount on Bond payable
$7,333
Interest payable
$ 56,250
TOTAL INTEREST EXPENSE
$127,166
Interest expense recognized in year1
$127,166
Answer: $127,166
Date
Account name
Debit
Credit
July1, year1
Interest Expense
$63,583
Discount on Bond payable
$7,333
Cash
$ 56,250
Dec 31, year1
Interest Expense
$63,583
Discount on Bond payable
$7,333
Interest payable
$ 56,250
TOTAL INTEREST EXPENSE
$127,166
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.