Question

On January 1, 2019, Castle Services issued $167,000 of six-year, 12% bonds when the market interest rate was 1 1 %. The bonds were issued for $180,000. Caste uses the effective-interest method to amortize the bond premium. 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 your answers to the nearest dollar number.)

A. Interest Expense 9,185 Cash 9.185
B. Interest Expense 9,900 120 Premium on Bonds Payable Cash 10,020
C. Interest Expense 9,185 835 Discount on Bonds Payable Cash 10,020
D. Cash 10,020 835 9.185 Premium on Bonds Payable Interest Expense

Answer 1

B. Interest Expense 9,900 120 Premium on Bonds Payable Cash 10,020

Step-by-step explanation:

Based on the information given the correct journal entry to record the first interest payment will be:

Dr Interest Expense 9,900

($180,000 × 11% × 6/12 = $9900)

Dr Premium on Bonds Payable120

(10,020-9,900)

Cr Cash 10,020

($167,000 × 12% × 6/12 = 10,020)

(Being to record first interest payment)