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23 September, 00:51

On January 1, 2020, Milwaukee Corporation issued $3,000,000 of its 20-year, 8% bonds payable at 96. Interest is payable annually on January 1. The entry to accrue interest on December 31, 2020 would include a

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  1. 23 September, 00:59
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    It will include credit to discount on bonds payable for $6,000

    Explanation:

    Solution

    Given that

    Issue price of bond = $3,000,000 * 96%

    Issue of bond = $ 2,880,000

    Thus,

    The discount of bond payable = $3,000,000 - $ 2,880,000

    =$120,000

    Amortization of discount of bond payable = $120,000/20

    =$6,000

    Now,

    We prepare an entry to accrue interest which is given below:

    Entry to accrue interest

    Date Account Titles and Explanation Debit Credit

    31-12-2020 Interest expense $246,000

    discount of bond payable $6,000

    Interest payable $240,000

    (To record the interest accrued)
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