On January 1, a company issues bonds dated January 1 with a par value of $310,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 12% and the bonds are sold for $298,594. The journal entry to record the first interest payment using the effective interest method of amortization is:
A. Debit Interest Expense $16,184; debit Discount on Bonds Payable $866; credit Cash $17,050.
B. Debit Interest Expense $17,916; credit Premium on Bonds Payable $866; credit Cash $17,050.
C. Debit Interest Payable $17,050; credit Cash $17,050.
D. Debit Interest Expense $16,184; debit Premium on Bonds Payable $866; credit Cash $17,050.
E. Debit Interest Expense $17,916; credit Discount on Bonds Payable $866; credit Cash $17,050.
Answer: E
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