Homework Answers
1.
Interest at 8% for a period of 6 months = 400000 * 8% * 6/12 = 16000
Interest at 10% for a period of 6 months = 400000 * 10% * 6/12 = 20000
Discount = 20000 - 16000 = 4000
Interest expense 20000
To Interest payable 16000
To Bond discount 4000
2.
If bonds are sold on May instead of June:
Interest 8% = 400000 * 8% * 2/12 = 5333
Interest at 10 % = 400000 * 10% * 10/12 = 33333
3.
Interest expense 16000
premium 4000
To Interest payable 20000
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