On January 1, 2007, Guardiola, Inc. sold 8% bonds with a face value of $600,000.

Question

On January 1, 2007, Guardiola, Inc. sold 8% bonds with a face value of $600,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold to yield 10%. Using the effective-interest method of amortization, the entry to record coupon payment on June 30, 2007 is:

a. DR Interest Expense: 38,310 DR Discount on Bonds Payable: 9,690 CR Cash: 48,000

b. DR Interest Expense: 45,020 DR Premium on Bonds Payable: 2,980 CR Cash: 48,000

c. DR Interest Expense: 27,683 CR Discount on Bonds Payable: 3,683 CR Cash: 24,000

d. DR Interest Expense: 55,366 CR Discount on Bonds Payable: 7,366 CR Cash: 48,000

Explanation / Answer

Therefore, option C is correct.

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