On January 1, a company issues bonds dated January 1 with a par value of $680,000. 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 $662,000. The journal entry to record the first interest payment using straight-line amortization is:
A. Debit Interest Payable $23,800; credit Cash $23,800.
B. Debit Interest Expense $20,800; debit Discount on Bonds Payable $3000; credit Cash $23,800.
C. Debit Interest Expense $23,800; credit Premium on Bonds Payable $3000; credit Cash $20,800.
D. Debit Interest Expense $26,800; credit Discount on Bonds Payable $3000; credit Cash $23,800.
E. Debit Interest Expense $23,800; credit Cash $23,800.
Answer: D
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