220. Silk Company issued $500,000 of 7%, 10-year bonds on its interest date for $431,850 to yield an effective annual rate of 9%. The effective-interest method of amortization is to be used. Interest is paid annually. The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a

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The interest expense is calculated using the effective interest rate on the carrying amount of the bonds. The discount on bonds payable is amortized by the difference between the interest expense and the cash paid for interest. The cash paid is $35,000 (7% of $500,000), and the interest expense is $38,867 (9% of $431,850), so the discount amortized is $3,867.