On January 1, 2014, Zing Services issued $165,000 of 6-year bonds with a stated

Question

On January 1, 2014, Zing Services issued $165,000 of 6-year bonds with a stated rate of 12%. The market rate at time of issue was 11%, so the bonds were issued with a premium and sold for $172,110. Zing uses the effective-interest method to amortize the bond premium. Semiannual interest payments are made on June 30 and December 31 of each year. Which of the following is the correct journal entry to record the first interest payment? O Interest Expense 9,294 Cash 9,294 St Expense 606 Discount on Bond Payable Cash 9,900 9,466 434 Interest Expense Premium on Bonds Payable Cash O Cash 9,900 Premium on Bonds Payable606 Interest Expense 9,294

Explanation / Answer

Option C is correct:

interest expense will be equal to issue price * market rate * 6 / 12 months.....(since this is a semi annual oayment).

=>$172,110 * 11% * 6/12

=>$9,466....(rounded off).

cash to be paid will be = face value * stated rate * 6/12

=>$165,000 * 12% *6/12

=>$9,900.

amount debited to premium on bonds payable will be = interest expense - interest paid

=>9900- 9466

=>$434.

Interest expense 9,466 premium on bonds payable 434 .............To Cash a/c 9,900

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