Question

On January 1, a company issues bonds dated January 1 with a par value of $700,000. The bonds mature in 3 years. The contract rate is 10%, and interest is paid semiannually on June 30 and December 31. The bonds are sold for $682,000. The journal entry to record the first interest payment using straight-line amortization is:

Multiple Choice

Debit Interest Expense $35,000; credit Premium on Bonds Payable $3,000; credit Cash $32,000.

Debit Interest Expense $38,000; credit Discount on Bonds Payable $3,000; credit Cash $35,000.

Debit Interest Payable $35,000; credit Cash $35,000.

Debit Interest Expense $35,000; credit Cash $35,000.

Debit Interest Expense $32,000; debit Discount on Bonds Payable $3,000; credit Cash $35,000.

Answer 1