On January 1, Year 1, Liang Corporation issues a $100,000 bond at a discount for $95,083. The coupon rate is 10% and the market interest rate is 12%. The bonds pay interest semiannually on June 30 and December 31. The journal entry to record the interest payment on June 30, Year 1 will include which of the following entries?

(1) Debit interest expense $5,705

(2) Credit discount on bonds payable $750 (Interest expense ($95,083*6%) - Cash interest paid ($100,000*5%) = Discount 705)

Dr interest expense $5,705

Cr cash $5,000

Cr discount on bonds payable $705

Explanation:

The interest expense for the period ended 30 June Year 1 is the cash proceeds multiplied by the market interest rate for six months i. e 12%/2=6%

interest expense=$95,083*6%=$5,705

Coupon payment for the six-month ended 30 June Year is the face value of the bonds ($100,000) multiplied by the coupon rate for six months i. e 10%/2=5%

coupon payment=$100,000*5%=$5,000

Amortization of discount on bonds payable=interest expense-coupon=$5,705-$5,000=$705