1. On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the first interest payment using straight-line amortization is:

Multiple Choice

• Debit Interest Expense $14,000.00; credit Cash $14,000.00.

• Debit Interest Payable $14,000.00; credit Cash $14,000.00.

• Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00.

• Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00.

• Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00.

2. Interest on bonds is tax deductible, while dividend payments are not tax deductible.

TRUE OR FALSE