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1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

11. Long Term Liabilities

Straight Line Amortization of Bond Premium or Discount

Financial Accounting

11. Long Term Liabilities

Straight Line Amortization of Bond Premium or Discount

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Multiple Choice

Jayster Company issued bonds at a discount. The semi-annual journal entry for interest expense will include:

A debit to Discount on Bonds Payable

A debit to Premium on Bonds Payable

A credit to Discount on Bonds Payable

A credit to Premium on Bonds Payable

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Verified step by step guidance

Understand that when bonds are issued at a discount, the bonds are sold for less than their face value. This discount needs to be amortized over the life of the bond.

Recognize that the semi-annual interest expense entry involves recording the interest expense and adjusting the discount on bonds payable.

Calculate the interest expense using the effective interest rate method, which involves multiplying the carrying amount of the bond by the market interest rate at issuance.

Determine the cash interest payment, which is calculated by multiplying the face value of the bond by the stated interest rate.

The difference between the interest expense and the cash interest payment is the amount of discount amortization, which is credited to the Discount on Bonds Payable account in the journal entry.