So confused… would really appreciate any help
On May 1, 2002, Bolt Corp. issued 11% bonds in the face amount of $1,000,000, which mature on May 1, 2012.
The bonds were issued to yield 10%, resulting in bond premium of $62,000. Bolt uses the effective interest method of amortizing bond premium. Interest is payable semiannually on November 1 and May 1.
In its October 31, 2002 balance sheet, what amount should Bolt report as unamortized bond premium? The answer is
60100
The entry is
Int Expense 53100
Bond Premium 1900
Cr. Interest Payable 55000
<b>Why is this interest payable? It says because as of 10/31 6 month period has passed, interest exp must be recognized but cash isn't since its due the next day. This would make sense but a similar question…</b>
On January 1, 2004, Kay Inc. issued its 10% bonds in the face amount of $400,000, which mature on January 1, 2014. The bonds were issued for $354,000 to yield 12%, resulting in a bond discount of $46,000. Kay uses the effective interest method of amortizing bond discount. Interest is payable semiannually on July 1 and January 1.
At June 30, 2004, Kay's unamortized bond discount would be (ANSWER 44760)
But this time, the entry is
Interest expense 21240
Cr. Bond discount 1240
Cr. Cash 20000
<b> I guess my main question is, why are these entries different? <b> If cash is paid the next day July 1, why isnt it recorded as a interest payable instead of cash like the first entry?
.
