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Untitled Document38 - interest expense and the interest...

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The  effective interest method  of amortizing the premium calculates interest  expense using the carrying value of the bonds and the market interest rate when  the bonds were issued. For the first payment, the interest expense is $562. It is  calculated by multiplying the $11,246 (carrying value of the bonds) times 10%  (market interest rate) × 6 / 12  (semiannual payment). The amount of interest paid is  $600 ($10,000 face value of bonds × 12% coupon interest rate × 6 / 12  semiannual  payments). The $38 of premium amortization is the difference between the 
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Unformatted text preview: interest expense and the interest paid. The entry to record the first interest payment on December 31 using the effective interest method of amortizing the premium would be: General Journal Date Account Title and Description Ref. Debit Credit Dec. 31 Interest Expense ($11,246 10% 6 / 12 ) 562 Premium on Bonds Payable 38 Cash ($10,000 12% 6 / 12 ) 600 Pay semiannual interest using interest method of amortization...
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This note was uploaded on 12/25/2011 for the course FIN 3312 taught by Professor Staff during the Spring '08 term at Texas State.

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