A.

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20-year term and a stated rate of interest of 7%. Which of the following journal entries is necessary to recognize the bond issue on January 1, Year 1?

Account Titles	Debit	Credit
Cash	50,000
Discount on Bonds Payable		2,000
Bonds Payable		48,000

Account Titles	Debit	Credit
Cash	50,000
Bonds Payable		50,000

Account Titles	Debit	Credit
Bond Payable	48,000
Discount on Bonds Payable	2,000
Cash		50,000

Account Titles	Debit	Credit
Cash	48,000
Discount on Bonds Payable	2,000
Bonds Payable		50,000

B.

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%. Assuming as straight-line amortization of the discount, the amount of interest expense recognized on the December 31, Year 1 income statement is

$5,500.

$3,400.

$3,500.

$3,600.

C.

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7% payable in cash on December 31 of each year.Assuming a straight-line amortization of the discount, the journal entry necessary to recognize interest expense on the December 31, Year 1 is

Account Titles	Debit	Credit
Interest Expense	3,500
Discount on Bonds Payable		100
Cash		3,400

Account Titles	Debit	Credit
Interest Expense	3,600
Discount on Bonds Payable		100
Cash		3,500

Account Titles	Debit	Credit
Interest Expense	3,500
Discount on Bonds Payable	100
Cash		3,600

Account Titles	Debit	Credit
Interest Expense	3,600
Cash		3,600