Whats the Journal Entry for Year ONE??
Dr Interest Exp $7360
Cr Cash $7000
Cr ????? $360
We know the Discount on Note Payable is $8,000, but we aren't told how to amortize the discount - which would be either straight-line amortization or amortize via the effective interest rate method. If we are told the straight-line method, we would have to be told the term of the bond.
If we are told to use the effective interest method, then we would have the following:
Dr. interest expense 7,360
Cr. Discount on N/P 360
Cr. Cash 7,000 (face value x coupon %)