On January 1, a company issues bonds dated January 1 with a par value of $400,00

Question

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the first interest payment using straight-line amortization is: Question 12 options: A-Debit Interest Payable $14,000.00; credit Cash $14,000.00. B-Debit Interest Expense $14,000.00; credit Cash $14,000.00. C-Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. D-Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. E-Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00.

Explanation / Answer

Answer

D. Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00

Note: Discount on Bonds Payable = (400000-383793)/10 = 1620.70

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