Explore BrainMass

# Question about Effective interest method

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

A company issued 14%, 5 year bonds with a par value of \$5,000,000 on Jan 1, 2003. Interest to be paid semiannually on June 30 and December 31. The bonds are issued for \$5,368,035 cash when the market interest rate for this bond was 12%. What would be the journal entries to record the issuance of this company's bonds, and the first semiannual interest payment on June 30, and the second annual interest payment on December 31. How do I calculate the first and second semi-annual interest payment and the amortization of bond premium?

#### Solution Preview

Under the effective interest method, interest expense is calculated as
Carrying value of bonds X market interest rate
Premium amortization = Cash interest paid - interest expense
For the first semi annual interest
Interest ...

#### Solution Summary

This solution explains how to calculate the first and second semi-annual interest payment and the amortization of bond premium under the effective interest method.

\$2.19