On January 1,2013,$800,000,5-year,bonds with a contract rate of 8% payable annually were issued for cash of $684,627 when the market rate of interest was 12%.The first annual cash interest payment was $64,000 while that period's interest expense was calculated as $82,155.24.How would the company record the journal entry to record this first annual interest payment?
A)Debit Cash for $684,627,debit Discount on Bonds Payable for $115,373,and credit Bonds Payable for $800,000.
B)Debit Interest Expense for $82,155.24 and credit Cash for $82,155.24.
C)Debit Interest Expense for $64,000.00 and credit Cash for $64,000.00.
D)Debit Interest Expense for $82,155.24,credit Discount on Bonds Payable for $18,155.24,and credit Cash for $64,000.00.
E)Debit Interest Expense for $64,000.00,debit Discount on Bonds Payable for $18,155.24 and credit Cash for $82,155.24.

Question

Quizplus · Accepted Answer

The correct journal entry involves debiting Interest Expense for the amount calculated ($82,155.24), crediting Cash for the actual cash payment made ($64,000), and crediting Discount on Bonds Payable for the difference ($18,155.24) to account for the amortization of the bond discount.

On January 1,2013,$800,000,5-Year,bonds with a Contract Rate of 8% Payable