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?

Question

Business

Dalia Graves

10 March, 13:21

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?

+1

Answers (1)

Know the Answer?

Natalya Flowers · Answer 1

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