Question
. The Stylist Company issued 20-year bonds on January 1. The 10% bonds have a face value of $900,000 and pay interest every January 1
. The Stylist Company issued 20-year bonds on January 1. The 10% bonds have a face value of $900,000 and pay interest every January 1 and July 1. The bonds were sold for $982,808 based on the market interest rate of 9%. Stylist uses the effective interest method to amortize bond discounts and premiums. On July 1 of the first year, Stylist should record which of the following journal entries when the interest is paid. (round to the nearest dollar)
a. debit Interest Expense $45,000; credit Cash $44,226 and Discount on Bonds Payable $774.
b. debit Interest Expense $44,226 and Premium on Bonds Payable $774; credit Cash $45,000.
c. debit Interest Expense $42,930 and Premium on Bonds Payable $2,070; credit Cash $45,000.
d. debit Interest Expense $47,070; credit Cash $45,000 and Discount on Bonds Payable $2,070.
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