Question

On January 1, a company issues bonds dated January 1 with a par value of $320,000. 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 6 % and the bonds are sold for $333,650. The journal entry to record the first interest payment using the effective interest method of amortization is: (Rounded to the nearest dollar.) Multiple Choice Debit Bond Interest Expense $9.835.00; debit Premium on Bands Payable $1,365.00; credit Cash $11,200.00 Debit Bond Interest Expense 12,565.00, credit Premium on Bonds Payable $1.365.00; credit Cash $11,200.00 Debit Interest Expense $10,010; debit Premium on Bonds Payable $1,190, credit Cash $11,200, Debit Interest Payable $11,200.00; credit Cash $11,200.00 Debit Bond Interest Expense $10,010.00; debit Discount on Bonds Payable $1190.00; credit Cash $11,200.00.

Answer 1

Answer

The Correct option is C

C.Debit interst expense $10010, debit premium on bonds payable $1190, credit cash $11200.

Explnation

interest expense is debited with total bonds payable outstanding * market rate *1/2 =>$333650 *6%*1/2 =>$10010

cash is credited with face value * stated rate *1/2 =>$320,000 * 7%*1/2 =>$11,200.

discount on premium on bonds payable = $11,200 - $10010 =>$1190