Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations. Effective-interest method of amortization: It is an amortization model that apportions the amount of bond discount or premium based on the market interest rate. To identify : The correct journal entry to record the first semiannual interest payment using effective-interest amortization method.

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Chapter 12, Problem 10BQC

To determine

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Effective-interest method of amortization: It is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

To identify: The correct journal entry to record the first semiannual interest payment using effective-interest amortization method.

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On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. If Lisbon uses the straight-line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co. would include a debit toa. Interest Payable for $30,000b. Interest Expense for $32,500c. Cash for $70,000d. Premium on Bonds Payable for $5,500