On January 1, 2019, Agree Company issued $78,000 of five-year, 8% bonds when the

Question

On January 1, 2019, Agree Company issued $78,000 of five-year, 8% bonds when the market interest rate was 12%. The issue price of the bonds was $74,401 Agree uses the effective-interest method of amortization for bond discount. Semiannual interest payments are made on June 30 and December 31 of each year Which of the following is the correct journal entry to record the first interest payment? (Round all amounts to the nearest whole dollar.) OA. Interest Expense 4,680 Cash 4,680 O B. Interest Expense 3,120 1,560 Discount on Bonds Payable Cash 4,680 ° C. Interest Expense 4,680 Discount on Bonds Payable Cash 3,120 1,560 O D. Interest Expense 4.464 Discount on Bonds Payable Cash ,344 3,120

Explanation / Answer

Interest expense = $74,401×12%/2 = $4,464

Cash paid for coupon payment = $78,000×8%/2 = $3,120

Discount on bonds payable = $4,464-$3,120 = $1,344

Hence, correct option is (D)

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