Question

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?

Answer 1

interest expense 205,176 debit

premium on BP 18824 debit

cash 224,000 credit

--to record first interest payment--

Step-by-step 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