Question

# On January 1 a company issued and sold a \$400,000, 7%, 10 year bond payable, and...

On January 1 a company issued and sold a \$400,000, 7%, 10 year bond payable, and received cash proceeds of \$396,000. Interest is payable each December 31. The company uses the straight line method to amortize the discount. The journal entry to record the first interest payment is: A. debit to bond interest expense of \$28,000, credit to cash of \$28,000 B. debit to bond interest expense of \$28,400, credit to cash of \$28,000, credit to discount on bonds payable of \$400 C. debit to bond interest expense of \$27,600, debit to discount on bonds payable of \$400, credit to cash of \$28,000 D. debit to bond interest expense of \$28,000, debit to discount on bonds payable of \$400, credit to cash of \$28,400

Bond Interest Expense.......................\$28,400

Cash.................................................................\$28,000

Discount on bond payable........................................\$400

(Being interest on bond payed)

Explanation :

Interest : \$ 400000 * 7/100 = \$28,000

Discount : \$400,000 - \$396,000 / 10 = \$400

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