A corporation issued $600,000, 10%, 5-year bonds on January 1, 2010 for 648,666, which reflects an effective-interest rate of 8%. Interest is paid semiannually on January 1 and July 1. If the corporation uses the effective-interest method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2010, is

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The bond interest expense is calculated using the effective interest rate on the carrying amount of the bonds. The carrying amount on January 1, 2010, is $648,666. The effective interest rate is 8% annually, or 4% semiannually. Therefore, the interest expense for the first period is $648,666 * 4% = $25,946.64, rounded to $25,946.

A Corporation Issued $600,000, 10%, 5-Year Bonds on January 1