On February 1st, Starr Company issued $500,000, 5-year, 4% bonds. The market rate at the time of the sale was greater than 4% so the bonds were sold at 94. Interest is payable July 31th and January 31st. The entry to record the sale of the bonds would include a:
Debit to Discount on Bonds Payable for $30,000.
Debit to Cash for $500,000.
Credit to Cash for $470,000.
Credit to Bonds Payable for $470,000.
Part B - Refer to Part A. Starr Company uses the straight-line method to amortize discount on the bonds, the entry to record the first interest payment would include:
Credit to Cash for $20,000.
Debit to Interest Expense for $13,000.
Debit to Interest Expense for $6,000.
Debit to Discount on Bonds Payable for $3,000.
Answer 1) Debit to Discount on Bonds... View the full answer