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15 April, 15:26

On January 1, 2019, Chin Corporation issued $ 3 comma 200 comma 000 , 14 %, 5 minus year bonds. The bond interest is payable on January 1 and July 1. The bonds sold for $ 3 comma 419 comma 600. The market rate of interest for these bonds was 12 %. Under the effective minus interest method, what is the interest expense for the six months ending July 1, 2019?

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  1. 15 April, 15:43
    0
    interest expense 205,176 debit

    premium on BP 18824 debit

    cash 224,000 credit

    --to record first interest payment--

    Explanation:

    procceds 3,419,600

    face value (3,200,000)

    premium on bonds payable 219,600

    semiannual bond rate 14% / 2 = 0.07

    semiannual market rate 12% / 2 = 0.06

    For the cash outlay we do face vbalue x bond rate

    For the interest expense we do carrying value x market rate

    the difference will be the amortization

    3,419,600 x 6% = 205,176

    3,200,000 x 7% = 224,000

    amortization 18,824
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