On January 1, 2017, Streuly Sales issued $34,000 in bonds for $18,700. These are six−year bonds with a stated rate of 9% and pay semiannual interest. Streuly Sales uses the straight−line method to amortize the Bond Discount. Immediately after the issue of thebonds, the ledger balances appeared as follows:Bonds Payable 34,000Discount on Bonds Payable15,300After the second interest payment on December 31, 2017, what is the balance of Discount on Bonds Payable? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)A. debit of $14,025B. debit of $16,575C. credit of $15,300D. debit of $12,750

Balance of discount on bonds payable is a debit of $12,750.

Explanation:

Concepts and reason

Discount on Bonds Payable: It is the amount of discount that is given to the purchaser of the bonds while issuing the bond. It is given as a percentage of the par value of the bond. The amount of discount is then amortized in the books over the life of the bond.

Fundamentals

Bond: A bond is basically an interest-bearing loan instruments that are issued by the companies in order to raise funds for expansion or functioning of the company. The bonds carry a fix coupon rate that is paid to the bond holders by the company.

Amortization: This is the paying-off of liability with a fixed settlement schedule in steady installments during a period of time. It also denotes to the distribution of capital expenses for intangible assets over a definite duration (typically over the useful life of that asset) for taxation and accounting purposes

Interest cost: It refers to the amount paid by the borrower of the funds to the lender. Interest is paid by the borrower regularly over the period of time above the principal repayment. In this person use another person’s money in its business and pay interest on the same amount.  

Rules of debit and credit have been followed for journalizing the various transactions and these are as mentioned below:

Debit the Receiver and Credit the Giver: It is used for personal accounts. It indicates when the organization receives something from anyone then, what is received would be debited and the giver would be credited.  

Debit what comes in and Credit what goes out: It is used for real accounts. It indicates when the organization purchased or receive any asset then it would be debited and on the other side, when the asset is going out of the organization then, it would be credited.

Debit all expenses and losses, credit all incomes and gains: It is used in case of a nominal account, and according to this rule all the expenses and losses incurred by the organization would be debited and on the other side, all the incomes and gain of the organization would be credited.

Step by Step Solution

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