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

Bond Payable 12,228

b)

Interest Payable 12,655

Cash 12,655

c)

Interest Expense 12,655

Bond Payable 12,655

d)

Interest Expense 12,228

Cash 12,228

e)

Interest Expense 12,655

Cash 12,655