Burns Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2010, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Burn's fiscal year ends on December 31 and the company uses the effective interest method of amortization. The journal entry on December 31, 2010 will include:

Question

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The interest expense is calculated using the effective interest rate (10%) on the carrying amount of the bonds. The bond discount is amortized by the difference between the interest expense and the cash interest paid. The credit to Bond Discount represents the amortization of the discount.

Burns Company Issued $1,000,000 of 9 Percent, Ten-Year Bonds for $937,790