skyl

Thanks for the help..more please?Same info...Face value: 2,000,000Bond term: 10 yearsStated interest rate: 10% paid SEMI-annuallyMarket interest rate: 8%Issue Date: Jan 1st, 2006Interest Payment dates: June 30 and Dec 31 each year3) amt of interest expense to be recognized for 2006 using effective interest method?4) amt of bond interest paid in cash for 2006?Do I just multiply the face value by 10%?

Sandy2537

When the bond was issued on Jan 1st, 2006r Cash $2,271,000 (see my other answer)Cr Bond premium $271,000Cr Bond payable $2,000,000On June 30, 2006r Interest expense $90,840*Dr Bond premium $9,160 (amortization)Cr Cash $100,000*computed as (Bond payable plus unamortised premium) x 4% (i.e. half of 8% because it's semi-annually)= ($2,000,000 + $271,000) x 4%= $90,840On Dec 31, 2006r Interest expense $90,473.60*Dr Bond premium $9,526.40 (amortization)Cr Cash $100,000*computed as (Bond payable plus unamortised premium) x 4% (i.e. half of 8% because it's semi-annually)= ($2,000,000 + [$271,000 - $9,160]) x 4%= ($2,000,000 + 261,840) x 4%= $90,473.603) So the amt of interest expense to be recognised for 2006 is $90,840 + $90,473.60 = $181,313.604) amt of bond interest paid in cash for 2006?This will just be $100,000 + $100,000 = $200,000