On the First Day of the Fiscal Year, Lisbon Co

question 127

Multiple Choice

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. If the company uses the straight-line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co. would include a debit to:

• A) Interest Payable for $30,000
• B) Interest Expense for $32,500
• C) Cash for $70,000
• D) Premium on Bonds Payable for $5,500