On January 1, your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%. The market interest rate is 5%. The issue price of the bond was $10,866. Your company used the effective-interest method of amortization. At the end of the first year, your company should:

Multiple Choice

• debit Interest Expense for $543.30, debit Premium on Bonds Payable for $156.70, and credit Interest Payable for $700.

• debit Interest Expense for $700, credit Premium on Bonds Payable for $156.70, and credit Interest Payable for $543.30.

• debit Interest Expense for $700, debit Premium on Bonds Payable for $156.70, and credit Interest Payable for $543.30.

• debit Interest Expense for $543.30 and credit Interest Payable for $543.30.