On July 1, 20X1, Klein Company issued $200,000 face amount bonds for $195,000. The effective interest rate is 8%. The bonds pay semi-annual interest of 7% on January 1 and July 1. On December 31, 20X!, the company should credit

a.) interest expense for $7,000

b.) bond discount for $800

c.) interest expense for $7,800

I'm confused as to which interest rate to use as well as if I'm supposed to credit interest expense or the bond discount. Can you explain this to me? Thanks!