coupon: 2,000,000 * 0.05 = 100,000 (interest payable)
difference: 100,000 - 90,872.12 = $9,127.88 amortizes the premium
new carry value: 2,271,813 - 9,127.88 = 2,262,675.12
repeat every six months
for details on the journal entries see: http://accountingexplained.com/financial...
On July 1, 2011, Atwater Corporation issued $2,000,000 face value, 10%, 10-year bonds at $2,271,813. This price resulted in an effective-interest rate of 8% on the bonds. Atwater uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest July 1 and January 1.
(c) Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2011.
(d) Prepare the journal entry to record the payment of interest and the amortization of the premium on July 1, 2012, assuming no accrual of interest on June 30.
(e) Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2012
