On January 2, 2014, Mahoney Sales issued $10,000 in bonds for $10,900

Accounting Mar 19, 2021

On January 2, 2014, Mahoney Sales issued $10,000 in bonds for $10,900. They were 5-year bonds with a stated rate of 4% and pay annual interest payments. Mahoney Sales uses the straight-line method to amortize the bond premium. On December 31, 2014, how much will Mahoney report as interest expense on its income statement with respect to these bonds?

a. $220

b. $436

c. $180

d. $580

Expert Solution

Answer:

a .

Step-by-Step explanation

Premium on Bond= Issue Price -Face Value/ Life of Bond

=$10900-$10000/ 5

$180

Interest payable on bond = 4% *$10000=$400

Interest Expense ...Dr $220

Premium on Bond ... Dr $180

To Interest payable $400

( Being interest recorded)

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