On January 1, a company issues bonds dated January 1 with a par value of $370,000. 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 10% and the bonds are sold for $384,280. The journal entry to record the first interest payment using the effective interest method of amortization is: (Rounded to the nearest dollar.)
A. Debit Bond Interest Expense $18,922.00; debit Premium on Bonds Payable $1428; credit Cash $20,350.
B. Debit Bond Interest Expense 21,778; credit Premium on Bonds Payable $1428; credit Cash $20,350.
C. Debit Bond Interest Expense $19,214; debit Premium on Bonds Payable $1136; credit Cash $20,350.
D. Debit Interest Payable $20,350; credit Cash $20,350.
E. Debit Bond Interest Expense $19,214; debit Discount on Bonds Payable $1136; credit Cash $20,350.
Answer: C
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