Question

1

a. On January 1 of Year 1, Congo Express Airways issued $4,000,000 of 6% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,630,000 and the market rate of interest for similar bonds is 7%. The bond premium or discount is being amortized at a rate of $12,333 every six months. The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be?

b. On January 1, Year 1, Stratton Company borrowed $260,000 on a 10-year, 10% installment note payable. The terms of the note require Stratton to pay 10 equal payments of $42,314 each December 31 for 10 years. The required general journal entry to record the payment on the note on December 31, Year 2 is?

Answer 1

1a) Total interest expense for year 1 = Interest paid+Discount amortization = (4000000*6%)+(12333*2) = $264666

1b) Journal entry

Date	General Journal	Debit	Credit
	Interest expense (260000-16314)*10%	24368.60
	Notes payable	17945.40
	Cash		42314