On January 1, 20X8, Hasta Corporation issues 2-year, $200,000 face value zero-coupon bonds with a negotiated interest rate of 7%. If Hasta uses the effective interest rate method, which of the following is the correct journal entry for Hasta to make on December 31, 20X8 to accrue interest?

a)

Interest expense $12,228

Cash $12,228

b)

Interest expense $12,655

Bond payable $12,655

c)

Interest payable $12,655

Cash $12,655

d)

Interest expense $12,655

Cash $12,655

e)

Interest expense $12,228

Bond payable $12,228