On January 1, a company issues bonds dated January 1 with a par value of $600,000. The bonds mature in 3 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The bonds are sold for $564,000. The journal entry to record the first interest payment using straight-line amortization is:
A. Debit Interest Expense $21,000; credit Cash $21,000.
B. Debit Interest Payable $21,000; credit Cash $21,000.
C. Debit Interest Expense $15,000; debit Discount on Bonds Payable $6,000; credit Cash $21,000.
D. Debit Interest Expense $21,000; credit Premium on Bonds Payable $6,000; credit Cash $15,000.
E. Debit Interest Expense $27,000; credit Discount on Bonds Payable $6,000; credit Cash $21,000.
Answer: E
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