On January 1, 2017, Agee Company issued $85,000 of five-year, 8% bonds when the market interest rate was 12%
The issue price of the bonds was $62,401. Agee 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.)
A)
Interest Expense 5,100
Cash 5,100
B)
Interest Expense 3,744
Discount on Bonds Payable 344
Cash 3,400
C)
Interest Expense 3,400
Discount on Bonds Payable 1,700
Cash 5,100
D)
Interest Expense 5,100
Discount on Bonds Payable 3,400
Cash 1,700
B .Interest Expense = $62,401 x 12% x 6/12 = $3,744
Cash paid = $85,000 x 8%x 6/12 = $3,400
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