Trego Company issued, payable on 31 December, 2014, $10,000,000 face value, 4%, 5-year bonds. Interest will be paid semiannually each 30 June and 31 December. The bonds sold at a price of 102; Trego uses the straight-line method of amortizing bond discount or premium.
-Trego's entry at 30 June, 2015, to record the first semiannual payment of interest and amortization of discount/premium on the bonds includes a:

Question

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The semiannual payment of interest and amortization of discount/premium on the bonds indicates that the company is using the effective interest rate method to amortize the discount/premium on the bonds. This means that the interest expense recognized on the bond is a combination of the coupon interest payment and the amortization of the discount/premium. Therefore, the journal entry should include a debit to Bond Interest Expense for the total interest expense of $220,000 ($200,000 in coupon interest payment + $20,000 in amortization of the premium), and a credit to Cash for the amount paid. There is no need to credit Premium on Bonds Payable as it is a contra account and should be included in the carrying amount of the bond on the balance sheet.

Trego Company Issued, Payable on 31 December, 2014, $10,000,000 Face