Help someone in accounting! A company issued 5 yr 7% bonds par value 100,000. It received 98,000 bond use sl4a

Question

A company issued 5-year, 7% bonds with a par value of 100,000. On January 1, 2007 the company received $98,000 for the bonds. Using the straight-line method for amortization, the amount of interest expense for the first annual interest period is?

Show me how you got your answer

Answer 1

When the co. issued the bond, the entry was:
Dr Cash 98,000
Dr Bond discount 2,000
Cr Bond payable 100,000

Interest can be payable semi-annually or annually. In your case it's annually. Since it's annually, and the method is straight-line, you amortise the bond discount over 5 annual periods, i.e. each period you amortise 2,000/5 = 400. When it's time to pay the interest, the entry is:
Dr Bond interest 7,400
Cr Bond discount 400
Cr Cash 7,000 ($100,000 x 7%)

Answer 2

12/31/10 Cash 100,000dr Bonds 100,000cr Some Account(Carrying Value) 8,111dr Bonds 8,111 cr 6/30/11 Interest Expense 5,000dr Interest Payable 5,000cr Some Account(Carrying Value) 7,300 dr Bonds 7,300 cr 12/31/11 Interest Expense 5,000 dr Interest Payable 5,000 cr Some Account(Carrying Value) 6,489 dr Bonds 6,489 cr