C is corrent. The solutions approach is to prepare the 12/31/Y1 interest entry.
| Interest expense | 93,900 | |
| | Cash | | 90,000 |
| | Discount on bonds payable | | 3,900 |
Using the interest method, interest expense is the book (carrying) value of the bonds outstanding during the year ($939,000) times the yield rate of 10%. The cash interest paid was the face amount of the bonds ($1,000,000) times the stated rate of 9%. The difference of $3,900 is the bond discount amortization. Since the original discount was $61,000 ($1,000,000 less $939,000), the unamortized discount at 12/31/Y1 is $57,100 ($61,000 less $3,900).
A is incorrect. The solutions approach is to prepare the 12/31/Y1 interest entry.
| Interest expense | 93,900 | |
| | Cash | | 90,000 |
| | Discount on bonds payable | | 3,900 |
Using the interest method, interest expense is the book (carrying) value of the bonds outstanding during the year ($939,000) times the yield rate of 10%. The cash interest paid was the face amount of the bonds ($1,000,000) times the stated rate of 9%. The difference of $3,900 is the bond discount amortization. Since the original discount was $61,000 ($1,000,000 less $939,000), the unamortized discount at 12/31/Y1 is $57,100 ($61,000 less $3,900)
.
B is incorrect. The solutions approach is to prepare the 12/31/Y1 interest entry.
| Interest expense | 93,900 | |
| | Cash | | 90,000 |
| | Discount on bonds payable | | 3,900 |
Using the interest method, interest expense is the book (carrying) value of the bonds outstanding during the year ($939,000) times the yield rate of 10%. The cash interest paid was the face amount of the bonds ($1,000,000) times the stated rate of 9%. The difference of $3,900 is the bond discount amortization. Since the original discount was $61,000 ($1,000,000 less $939,000), the unamortized discount at 12/31/Y1 is $57,100 ($61,000 less $3,900).
D is incorrect. The solutions approach is to prepare the 12/31/Y1 interest entry.
| Interest expense | 93,900 | |
| | Cash | | 90,000 |
| | Discount on bonds payable | | 3,900 |
Using the interest method, interest expense is the book (carrying) value of the bonds outstanding during the year ($939,000) times the yield rate of 10%. The cash interest paid was the face amount of the bonds ($1,000,000) times the stated rate of 9%. The difference of $3,900 is the bond discount amortization. Since the original discount was $61,000 ($1,000,000 less $939,000), the unamortized discount at 12/31/Y1 is $57,100 ($61,000 less $3,900).
