On January 1, your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 8%. The market interest rate is 6%. The issue price of the bond was $10,956. Your company used the effective-interest method of amortization. At the end of the first year, your company should:
A. debit Interest Expense for $800, credit Premium on Bonds Payable for $143.00, and credit Interest Payable for $657.00.
B. debit Interest Expense for $800, debit Premium on Bonds Payable for $143.00, and credit Interest Payable for $657.00.
C. debit Interest Expense for $657.00, debit Premium on Bonds Payable for $143.00, and credit Cash for $800.
D. debit Interest Expense for $657.00 and credit Interest Payable for $657.00.
Answer: C
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