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On October 1, 2010 Macklin Corporation issued 5%, 10-year bonds with a face value of $1,000,000 at 108 (a 4% yield).Interest is paid on October 1 and April 1, with any premiums or discounts amortized on an effective-interest basis.
-Bond interest expense reported on the December 31, 2010 income statement of Macklin Corporation would be

Question

The following information applies to both questions 
On October 1, 2010 Macklin Corporation issued 5%, 10-year bonds with a face value of $1,000,000 at 108 (a 4% yield).Interest is paid on October 1 and April 1, with any premiums or discounts amortized on an effective-interest basis.
-Bond interest expense reported on the December 31, 2010 income statement of Macklin Corporation would be

Quizplus · Accepted Answer

The bond was issued at a premium, so the interest expense is calculated using the effective interest rate (4%) on the carrying amount of the bond. The carrying amount is $1,080,000 (108% of $1,000,000). The interest expense for the three months from October 1 to December 31 is $1,080,000 * 4% * (3/12) = $10,800.

The Following Information Applies to Both Questions