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On January 2, 2014, Mahoney Sales issued $10,000 in bonds for $9,400
On January 2, 2014, Mahoney Sales issued $10,000 in bonds for $9,400. They were 5-year bonds with a stated rate of 4% and pay annual interest payments. Mahoney uses the straight-line method to amortize the bond discount. Immediately after the bond issuance, the ledger balances appeared as follows:
|
Bonds payable |
|
Discount on bonds payable |
|
10,000 |
|
600 |
After the first interest payment on January 2, 2015, what was the balance in the discount account?
-
- Debit of $480
- Credit of $480
- Debit of $720
- Credit of $120
Expert Solution
Answer:
a .
Step-by-Step explanation
Discount on Bonds = $ 10000- $9400 = $600
Annual coupon amount= $ 10000*4%
=$ 400
Amortization on Bond = Discount/ No of years
=$600/ 5
= $120
On Jan2,2015
Interest expense Dr $ 520
To Discount $120
To cash $400
Hence, balance in discount account is debit $480( $600-$120)
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