Question

On January 1, a company issues bonds dated January 1 with a par value of $450,000. The bonds mature in 5 years. The contract rate is 10%, and interest is paid semiannually on June 30 and December 31. The market rate is 11% and the bonds are sold for $433,026. The journal entry to record the second interest payment using the effective interest method of amortization is: Multiple Choice O Debit Interest Expense $21,183.57; debit Premium on Bonds Payable $1,316.43; credit Cash $22,500.00. Debit Interest Payable $22,500.00; credit Cash $22,500.00 O Debit Interest Expense $21,183.57; debit Discount on Bonds Payable $1,316.43; credit Cash $22,500.00 Debit Interest Expense $23,816.43; credit Discount on Bonds Payable $1,316.43; credit Cash $22,500.00 Debit Interest Expense $23,888.83; credit Discount on Bonds Payable $1,388.83; credit Cash $22,500.00.

Answer 1

Journal entry

Date	account and explanation	Debit	Credit
	Interest expense (433026+1316)*5.5%	23889
	Discount on bonds payable		1389
	cash (450000*5%)		22500

So answer is e) Debit interest expense $23888.83; Credit discount on bonds payable $1388.83; credit Cash $22500