On July 1, 2016, the Jazz Corporation issues $4,000,000 of 10-year bonds dated J

Question

On July 1, 2016, the Jazz Corporation issues $4,000,000 of 10-year bonds dated July 1, 2016, at 89 when the market rate of interest was 8%. Jazz Corporation uses the effective - interest method of amortization. Interest is paid each June 30 and December 31. The entry to record the first semi- annual interest payment on December 31, 2016, will include a: O A. debit to Premium on Bonds Payable for $160,000 O B. credit to Discount on Bonds Payable for $284,800 O C. credit to Interest Payable for $320,000 O D. debit to Interest Expense for $142,400

Explanation / Answer

D.Debit to interest expense for $142,400.

the issue proceeds = $4,000,000 * 89% =>$3,560,000.

intrest expense will be debited by $3,560,000 * 8% effective rate * 6 /12 months

=>$142,400.

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