Question

DeShone Kizer Incorporated issued $200,000, 9% annual interest rate, 5-year bonds payable on January 1, 2018. The market rate of interest on similar debt instruments was greater than 9% on the date of issuance, so the selling price of the bonds payable was 97 (97% of face value). Interest is paid semiannually on every July1 and January 1. Kizer Inc. maintains their accounting records on a calendar year ending December 31. The journal entry for the payment of interest on July 1, 2021 would include a debit to bond interest expense for $9,000 a debit to discount on bonds payable for $600 a debit to bond interest expense for $9,600 a debit to bond interest payable for $9,000

Answer 1

Par Value of Bonds Payable	$2,00,000
Issue price of the Bond at 97% =	$1,94,000
Discount on issuance	$6,000
Period of Bonds 5year X 2 =	10 period 6 Months
Discount amortization per period = $ 6,000 / 10 =	$600.00
Interest on par value 9% /2 = 4.5% of $ 200,000 =	$9,000.00
Interest per period = Interest on par value + Discount amortization per period
Interest per period = $ 9,000 + $ 600
Interest per period = $ 9,600
As per above details,
Answer = Option 3 = Debit to Bond Interest Expenses for $ 9,600