On January 1, a company issues bonds dated January 1 with a par value of $500,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 12% and the bonds are sold for $481,603. The journal entry to record the first interest payment using straight-line amortization is:

Debit Interest Payable $27,500.00; credit Cash $27,500.00.

Debit Interest Expense $27,500.00; credit Cash $27,500.00.

Debit Interest Expense $25,660.30; debit Discount on Bonds Payable $1,839.70; credit Cash $27,500.00.

Debit Interest Expense $29,339.70; credit Discount on Bonds Payable $1,839.70; credit Cash $27,500.00.

Debit Interest Expense $29,339.70; credit Premium on Bonds Payable $1,839.70; credit Cash $27,500.00.