On January 1, a Company Issues Bonds Dated January 1

question 51

Multiple Choice

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the first interest payment using straight-line amortization is:

• A)Debit Interest Payable $13,500; credit Cash $13,500.00.
• B)Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00.
• C)Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.
• D)Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00.
• E)Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.Premium Amortization = $312,177 - $300,000 = $12,177/10 = $1,217.70

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