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 the effective interest method of amortization is:
A)Debit Interest Expense $12,487.08;debit Premium on Bonds Payable $1,012.92;credit Cash $13,500.00.
B)Debit Interest Payable $13,500;credit Cash $13,500.00.
C)Debit Bond Interest Expense $12,487.08;debit Discount on Bonds Payable $1,012.92;credit Cash $13,500.00.
D)Debit Bond Interest Expense $14,717.70;credit Premium 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.

Question

Quizplus · Accepted Answer

The interest expense is calculated using the market rate of 8% on the carrying amount of $312,177, resulting in $12,487.08. The cash interest payment is $13,500 (9% of $300,000 divided by 2). The difference of $1,012.92 is the amortization of the premium.

On January 1,a Company Issues Bonds Dated January 1 with a Par