On January 1,2013,Diab Services Issued $140,000 of 4-Year Bonds with a Stated

question 113

Multiple Choice

On January 1,2013,Diab Services issued $140,000 of 4-year bonds with a stated rate of 9%.The market rate at time of issue was 8%,so the bonds were issued with a premium and sold for $144,758.Diab uses the effective-interest method to amortize bond premium.Semiannual interest payments are made on June 30 and December 31 of each year.Which of the following is the correct journal entry to record the first interest payment?

• A) \[\begin{array} { | l | r | r | }
• \hline \text { Interest expense } & 5,600 & \\
• \hline \text { Cash } & & 5,600 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | r | r | }
• \hline \text { Interest expense } & 5,600 & \\
• \hline \text { Discount on bond payable } & 700 & \\
• \hline \text { Cash } & & 6,300 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | r | r | }
• \hline \text { Interest expense } & 5,790 & \\
• \hline \text { Premium on bonds payable } & 510 & \\
• \hline \text { Cash } & & 6,300 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | r | r | }
• \hline \text { Cash } & 6,300 & \\
• \hline \text { Premium on bonds payable } & & 700 \\
• \hline \text { Interest expense } & & 5,600 \\
• \hline
• \end{array}\]

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