Lassen Corporation issued ten-year term bonds on January 1,2010,with a face value of $800,000.The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $690,960 to yield an effective annual rate of 8 percent.The effective interest method of amortization is to be used.The entry to record the bond interest expense on the first interest payment date is: (Round answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The semi-annual interest payment on the bonds can be calculated as follows:

Semi-annual interest payment = Face value of bonds x Face interest rate x 6/12
= $800,000 x 6% x 6/12
= $24,000

Using the effective interest method of amortization, the interest expense on the first interest payment date can be calculated as follows:

Interest expense = Carrying value of bonds x Effective interest rate x 6/12
= $690,960 x 8% x 6/12
= $27,638.40

Therefore, the entry to record the bond interest expense on the first interest payment date will be:

Interest expense   $27,638
  Cash (or Bond Interest Payable)   $24,000
  Premium on Bonds Payable      $3,638

Lassen Corporation Issued Ten-Year Term Bonds on January 1,2010,with a Face