Exhibit 14-5 Hawk issued $200,000 of its ten-year 10% bonds for $224,924 on October 1, 2014. The effective rate on the bonds was 8% and interest is paid each October 1 and April 1.
-Refer to Exhibit 14-5. Assuming Hawk uses the effective interest method and reversing entries, the entry to record the payment of interest on April 1, 2015, would include a

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Under the effective interest method, interest expense is calculated using the effective interest rate (8%) multiplied by the carrying value of the bonds ($224,924). The calculation of interest expense for the first semi-annual payment is $8,996 ($224,924 x 8% x 6/12). This amount should be recorded with a debit to Interest Expense and a credit to Cash. The amortization of the bond premium ($224,924 - $200,000 = $24,924) should also be recorded, but in reversing entries. Therefore, there should be a credit to Premium on Bonds Payable for $502 ($24,924/10 x 6/12). There would be no entry to Bonds Payable or Cash for this transaction.

Exhibit 14-5 Hawk Issued $200,000 of Its Ten-Year 10% Bonds