On 1 January 2017,Finch Company Issued $75,000 of Five Year $$\begin{array} { | c | l | l | } \hline \text { Interest expense } & \$ 4500 & \\\hline \text { Cash } & & \$ 4500 \\\hline\end{array}$$

question 14

Multiple Choice

On 1 January 2017,Finch Company issued $75,000 of five year debentures with a stated rate of 8%.The market rate at time of issue was 12%,so the debentures were discounted and sold for $74,401.Finch uses the effective-interest method of amortisation for debenture discount.Half-yearly interest payments are made on 30 June and 31 December of each year.Which of the following is the correct journal entry to record the first interest payment? (Round all amounts to the nearest dollar.)

• A) \[\begin{array} { | c | l | l | }
• \hline \text { Interest expense } & \$ 4500 & \\
• \hline \text { Cash } & & \$ 4500 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | l | l | }
• \hline \text { Interest expense } & \$ 4500 & \\
• \hline\text { Discount on debentures } & & \\
• \text { payable } & & 3000 \\
• \hline \text { Cash } & & 1500 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | l | l | }
• \hline \text { Interest expense } & \$ 464 & \\
• \hline \begin{array} { l }
• \text { Discount on debentures } \\
• \text { payable }
• \end{array} & & 1464 \\
• \hline \text { Cash } & & 3000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | c | l | l | }
• \hline \text { Interest expense } & \$ 3000 & \\
• \hline \text { Discount on debentures payable } & 1500 & \\
• \hline \text { Cash } & & \$ 4500 \\
• \hline
• \end{array}\]

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