On January 1, Andrew Company issues $320,000, 15 year, 8% bonds (paying semiannual interest) for $360,800, when the annual market rate of interest is 6%.
If the company uses the effective interest method of amortization, the journal entry to record the semi-annual interest on June 30 will include a:

Question

Quizplus · Accepted Answer

The premium on bonds payable is amortized over the life of the bond. Using the effective interest method, the interest expense is calculated based on the carrying amount of the bond and the market rate. The difference between the interest expense and the cash interest payment is the amortization of the premium. Here, the premium amortization is $1,976.

On January 1, Andrew Company Issues $320,000, 15 Year, 8