The journal entry to record the first interest payment using straight-line amortization is:

A) Debit Interest Payable $14,000.00; credit Cash $14,000.00.
B) Debit Interest Expense $14,000.00; credit Cash $14,000.00.
C) Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00.
D) Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00.
E) Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00.

Question

Jessica Serrata · Accepted Answer

Final Answer : C, Explanation :  Under straight-line amortization method, the same amount of discount is allocated to each interest payment over the life of the bond.Step 1: Calculate the annual interest payment using the contract rate:$400,000 x 7% = $28,000Step 2: Calculate the semiannual interest payment:$28,000/2 = $14,000Step 3: Calculate the discount amortization for the first interest payment:Discount amortization = Discount/Number of interest paymentsDiscount = Par value - Sale price = $400,000 - $383,793 = $16,207Number of interest payments = 10 (5 years x 2 semiannual periods)Discount amortization = $16,207/10 = $1,620.70Step 4: Record the journal entry for the first interest payment:Debit Interest Expense $15,620.70 (=$14,000 + $1,620.70)Credit Discount on Bonds Payable $1,620.70Credit Cash $14,000.00

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