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On January​ 1, 2019, Commercial Equipment Sales issued $39,000 in bonds for $17,700. These are six−year...

On January​ 1, 2019, Commercial Equipment Sales issued $39,000 in bonds for $17,700. These are six−year bonds with a stated interest rate of 99​%, and pay semiannual interest on June 30 and December 31. Commercial Equipment Sales uses the straight−line method to amortize the Bond Discount. What amount is debited to Interest Expense on June​ 30, 2019?

A.$1,755

B.$43,185

C.$1,775

D.$3,530

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Answer #1

Solution:

Total discount on issue or bonds = face value - issue price = $39000 -$17700 = $21,300

Semiannual periods = 6years *2 = 12 half years

Discount amortization (semiannual) = $21300/12 = $1775

Cash payment for interest semiannually = $39000*9%*6/12 = $1755

Hence Interest expense on June 30, 2019 = cash paid + discount amortized = $1755 + $1775

= $3530

Hence, option "D" is correct.

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