On January 1,2016,a Company Issues 3-Year Bonds with a Face

question 13

Essay

On January 1,2016,a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%.Because the market interest rate is 5%,the company receives $52,723 for the bonds.
Required:
Part a.Determine the interest expense,the cash payment for interest,and the amount of the premium that will be amortized during the year ending December 31,2016.
Part b.Prepare the journal entry to record the first interest payment on December 31,2016.

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Definitions:

Income Statement

A report showing the earnings, expenses, and net income of a business during a particular period, reflecting its financial performance.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return, used in discounting to assess investment value.

Semiannual Interest

Interest that is calculated and paid twice a year, often associated with bonds or loans.

Effective Rate

The actual interest rate that a borrower pays or earns, taking into account the compounding of interest.