Question

On January​ 1, 2019, Agree Company issued​ $85,000 of​five-year, 8% bonds when the market interest rate was​ 12%. The issue price of the bonds was​ $62,401. Agree uses the​effective-interest method of amortization for bond discount. Semiannual interest payments are made on June 30 and December 31 of each year. Which of the following is the correct journal entry to record the first interest​ payment? (Round all amounts to the nearest whole​ dollar.)
A. Interest Expense ​3,400 Discount on Bonds Payable ​1,700 Cash ​5,100
B. Interest Expense ​5,100       Cash ​5,100
C. Interest Expense ​3,744 Discount on Bonds Payable 344  Cash ​3,400
D. Interest Expense ​5,100 Discount on Bonds Payable​3,400  Cash ​1,700

Answer 1

Answer:

c. Interest Expenses $ 3,744 Discount on Bonds Payable 344 Cash 3,400

Explanation:

Date    General Journal                 Debit      Credit

           Interest Expenses              $3,744

           ($62,401*12%*6/12)

                 Discount on Bonds Payable        $344

                 Cash                                              $3,400

                 ($85,000*8%*6/12)

So, the correct journal entry to record the first interest​ payment is Interest Expenses $3,744, Discount on Bonds Payable $344, Cash $3,400