A is corrent. Under the interest method, interest expense is computed as follows:
BV of bonds×Yield rate×Time period=Interest expense=$354,118×12%×6/12=$21,247
The interest payable on 6/30/Y1 is $20,000 ($400,000 × 10% × 6/12), so the 6/30/Y1 journal entry is
| Interest expense | 21,247 | |
| | Interest payable | | 20,000 |
| | Discount on BP | | 1,247 |
B is incorrect. Under the interest method, interest expense is computed as follows:
BV of bonds×Yield rate×Time period=Interest expense=$354,118×12%×6/12=$21,247
The interest payable on 6/30/Y1 is $20,000 ($400,000 × 10% × 6/12), so the 6/30/Y1 journal entry is
| Interest expense | 21,247 | |
| | Interest payable | | 20,000 |
| | Discount on BP | | 1,247 |
C is incorrect. Under the interest method, interest expense is computed as follows:
BV of bonds×Yield rate×Time period=Interest expense=$354,118×12%×6/12=$21,247
The interest payable on 6/30/Y1 is $20,000 ($400,000 × 10% × 6/12), so the 6/30/Y1 journal entry is
| Interest expense | 21,247 | |
| | Interest payable | | 20,000 |
| | Discount on BP | | 1,247 |
D is incorrect. Under the interest method, interest expense is computed as follows:
BV of bonds×Yield rate×Time period=Interest expense=$354,118×12%×6/12=$21,247
The interest payable on 6/30/Y1 is $20,000 ($400,000 × 10% × 6/12), so the 6/30/Y1 journal entry is
| Interest expense | 21,247 | |
| | Interest payable | | 20,000 |
| | Discount on BP | | 1,247 |
