X QC124 similar to ce value is 400 0 0 The company uses the

X QC12-4 (similar to) ce value is $400 0 0 . The company uses the slragh-line arrior lizat on method or he bond discount or premium n erest expense or each year is Sydney Park Antiques issued its 6%, 10-year bonds payable al a price o S335 0 0 (Ro Round your answer to the nearest whole dollar.) *A. S30.494. .xB, S24 ,000 OC. S20.104 OD. S17,506

Solution

Answer : A - $ 30,494

Explanation:

Discount on issue of 6%, 10 years Bonds payable :

i) Face value = 4,00,000

ii) Issuedprice = 3,35,060

iii) discount ( i - ii ) = 4,00,000 - 3,35,060 = $ 64,940

Amortisation of discount on issue of 6%, 10 years Bonds payable :

Total discount = 64,940 $

Amortisation period = 10 years

Amortised discount per year = 64,940/10 years

i.e., = 6,494 per year

Total interest expense per year:

Actual interest per year = $ 24,000 ( 4,00,000 * 6% )

Amortised discount = $ 6,494

Total interest expense per year = $ 24,000 + $ 6494

= 30,494 per anum

Journal entry :

Interest expense (Dr) 30,494

Discount on bonds payable (Cr) . 6,494

Interest payable (Cr). 24,000

Note : discount on issue of bonds payable is amortised over period of redemtion time ,And it should be transferred to interest expense account of the respective year.