Lex Enterprises is considering alternative ways of raising capital for the purchase of a new...
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Accounting
Lex Enterprises is considering alternative ways of raising capital for the purchase of a new factory. One alternative suggested by the controller is the issuance of bonds. After discussions with an underwriter, Lex decides to issue
$5,000,000
of 7%, 10-year bonds dated May 1, 2020, with interest payment dates of November 1 and May 1. Lex's year-end is December 31. Lex uses the effective-interest method of amortization.
Assuming the bonds were issued on May 1, 2020, at 87 when the market interest rate was 9%, and the company uses the effective interest method of amortization, the semiannual interest payment on November 1, 2020, would include a _______.
A.debit to Interest Expense for$175,000
B.credit to Discount on Bonds Payable for$20,750
C.debit to Premium on Bonds Payable for$20,750
D.credit to Interest Payable for$195750
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