On January 1, a company issues bonds dated January 1 with a par value of $730,000. The bonds mature in 3 years. The contract rate is 10%, and interest is paid semiannually on June 30 and December 31. The bonds are sold for $718,000. The journal entry to record the first interest payment using straight-line amortization is:
A. Debit Interest Expense $34,500; debit Discount on Bonds Payable $2000; credit Cash $36,500.
B. Debit Interest Payable $36,500; credit Cash $36,500.
C. Debit Interest Expense $36,500; credit Cash $36,500.
D. Debit Interest Expense $38,500; credit Discount on Bonds Payable $2000; credit Cash $36,500.
E. Debit Interest Expense $36,500; credit Premium on Bonds Payable $2000; credit Cash $34,500.
Answer: D
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