Cheryl Inc issued $100,000, 8%, 5-year bonds. The current market rate was 7.5%. Cheryl received $101,136.80 for the bonds. Using the effective interest method of amortizing bond premium or discount, the amount of interest expense for the first semiannual payment was:

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The interest expense is calculated using the market rate of 7.5% on the carrying amount of the bonds. The carrying amount is $101,136.80, and the semiannual market rate is 3.75% (7.5% annual rate divided by 2). Therefore, the interest expense for the first semiannual payment is $101,136.80 * 3.75% = $3,792.63.

Cheryl Inc Issued $100,000, 8%, 5-Year Bonds