JournaldrillInterest with straight-line discount
A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.
The task
On January 1, Kestrel Logistics issued $600,000 of 10-year, 8% bonds at 98. Interest is paid semiannually on June 30 and December 31, and the discount is amortized by the straight-line method. Record the first interest payment on June 30.
What this exercise teaches
The discount is $600,000 x 2% = $12,000, amortized over 20 periods at $600 each. Cash interest is $600,000 x 8% x 6/12 = $24,000, so interest expense is $24,000 + $600 = $24,600.
A hint if you get stuck
Cash paid is set by the stated rate, and amortizing a discount adds to interest expense.
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