Question

Kaselitz Corp. issued a $100,000, 9%, 5-year bond on 1/1/16. Interest is paid each June 30 and December 31. The bond sold for $104,055 to yield 8%. The effective interest method is used. Cash interest paid to the bondholders in 2016 is:

Answer 1

Cash interest paid to the bondholders in 2016 is $9,000

Step-by-step explanation:

The cash interest paid on the bond can be ascertained using the below coupon amount formula:

cash interest=face value*coupon rate

face value of the bond is $100,000

coupon rate is 9%

cash interest=$100,000*9%=$9,000

The cash account would be credited while interest expense is debited with $9000 plus amortization of premium on bonds