Question

On January 1, Year 1, Liang Corporation issues a $100,000 bond at a discount for $95,083. The coupon rate is 10% and the market interest rate is 12%. The bonds pay interest semiannually on June 30 and December 31. The journal entry to record the interest payment on June 30, Year 1 will include which of the following entries?
(1)Debit interest expense $5,705
(2)Credit discount on bonds payable $750(Interest expense ($95,083*6%)-Cash interest paid ($100,000*5%) = Discount 705)

Answer 1

Answer:

Dr interest expense  $5,705

Cr cash                                             $5,000

Cr discount on bonds payable          $705

Explanation:

The interest expense for the period ended 30 June Year 1 is the cash proceeds multiplied by the market interest rate for six months i.e 12%/2=6%

interest expense=$95,083*6%=$5,705

Coupon payment for the six-month ended 30 June Year is the face value of the bonds ($100,000) multiplied by the coupon rate for six months i.e 10%/2=5%

coupon payment=$100,000*5%=$5,000

Amortization of discount on bonds payable=interest expense-coupon=$5,705-$5,000=$705

Answer 2

A bond is termed as the instrument or the security of the company that the company avails in the market in order to raise finance or capital from the ompany. It carries a fixed percentage of interest or the income for the debtholders that is made by the investors or the borrowers.

The journal entries have been attached below.

The interest expense for the period ended 30 June Year 1 is:

The cash proceeds multiplied by the market interest rate for six months= $\begin{aligned}\frac{12\%}{2}=6\%\end{aligned}$

$\text{Interest expense}=\ 95,083\times6\%=\ 5,705$

Coupon payment for the six-month ended 30 June Year is:

The face value of the bonds multiplied by the coupon rate for six months= $\begin{aligned}\frac{10\%}{2}=5\%\end{aligned}$

$\text{Coupon payment}=\ 100,000\times5\%=\ 5,000$

$\begin{aligned}\text{Amortization of discount on bonds payable}&=\text{Interest expense coupon}\\&=\ 5,705-\ 5,000\\&=\ 705\end{aligned}$

To know more about the calculation of the bonds and the amortization, refer to the link below:

https://brainly.com/question/22212430