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On december 31, 2015, wintergreen, inc., issued $150,000 of 7 percent, 10-year bonds at a price of 93.25. wintergreen received $139,875 when it issued the bonds (or $150,000 x .9325). after recording the related entry, bonds payable had a balance of $150,000 and discounts on bonds payable had a balance of $10,125. wintergreen uses the straight-line bond amortization method. the first semiannual interest payment was made on june 30, 2016. complete the necessary journal entry for june 30, 2016 by selecting the account names and dollar amounts from the drop-down menus

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hoangkhangpham94

Answer:

30th June 2016:

Dr Interest expense                               $5,756.25

Cr Discount on bonds payable            $506.25

Cr Cash                                                  $5,250

(to record the interest expense on bonds issued at 31st December 2015)

Explanation:

The cash Wintergreen needs to paid out semiannually for interest on bond is: 150,000 x 7% / 2 = $5,250;

The amount of discount on bonds payable amount will be allocated/added equally to 20 interest expenses recording times ( twice-a-year for 10 years) as Wintergreen uses straight-line bond amortization, thus the amount added each time is 10,125/20 = $506.25;

Interest expenses recorded semiannually = Cash paid out to bond holders + Allocated of discount on bonds = 5,250 + 506.25 = $5,756.25.

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