Question by Lisa E: How do I figure straight line amortization without a coupon?
Amortization without coupon!?
On Aug. 1st 2005 a company issues bonds with a par value of $ 600,000. The bonds mature in ten years and pay %6 interest, payable each Feb. 1st and Aug. 1st. The bonds sold at $ 592,000. The company uses the straight line method of amortizing bond discounts. The company’s year end is Dec. 31. Prepare the general journal entry to record the interest accrued atr Dec. 31 2005.
Answer by a_racefan
I dont understand what you are looking for. The question asks what the interest accrued needs to be at Dec 31. You know the bond par value, the interest rate, and the number of months from when the bond was issued to the end of the year. You just need to calculate how much interest has accrued at Dec 31.
$ 600,000 x 6% = $ 36,000 annual interest
$ 36,000 / 12 months = $ 3,000 interest per month
$ 3,000 interest per month x 4 months (Aug-Dec) = $ 12,000
Dr Interest Expense $ 12,000
Cr Bond Interest Payable $ 12,000
What do you think? Answer below!