Question

Judie Co. issued bonds with a coupon rate of 0% and a face amount of $100,000....

Judie Co. issued bonds with a coupon rate of 0% and a face amount of $100,000. These are zero-coupon bonds (i.e., no payments are made except for the lump sum payment of the face value of the bonds on their maturity date). The bonds mature in 20 years. The market interest rate for bonds with the same degree of riskiness is 4% compounded annually. These bonds were issued on January 1 of Year 1. Jude uses the effective-interest method on its books. Note: Round all your calculations to the nearest dollar. In the adjusting journal entry made in connection with these bonds on December 31 of Year 1, there is a

A. DEBIT to Discount on Bonds of $4,000

B. DEBIT to Discount on Bonds of $1,826

C. DEBIT to Interest Expense of $4,000

D. DEBIT to Interest Expense of $1,826

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