Question

On January 1, 2009, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $487,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30, 2009 is $25,000.

a. TRUE

b. FALSE

Answer 1

Answer:

Annual interest expense = 10% x $500,000 = $50,000

Interest expense on June 30 = $50,000/2 = $ 25,000

The correct answer is A

Explanation:

In this case, there is need to calculate the annual interest expense, which is coupon rate (10%) multiplied by par value of the bond ($500,000). Then, we will divide the annual interest expense by 2 in order to obtain the semi-annual interest expense.

Answer 2

The entry that has been recorded with respect to the interest expense is true.

The company has issued a bond and received the payment for the bond. The interest in the bond is based on the semi-annual rate. This means at every six months the interest on the bond will be recorded.

The company is making use of the straight-line method to calculate the interest and the interest calculated is $ 25000.

Working Notes:

$\begin{aligned}\text{Annual Interest Expense} &= 10\% \times \ 500,000 \\&= \ 50,000\end{aligned}$

$\begin{aligned}\text{Interest Expense on June 30} = \frac{\ 50,000}{2} \\= \ 25,000\end{aligned}$

Therefore, the correct option is true,

To know more about the calculation of the interest, refer to the link below:

https://brainly.com/question/7504501