On January 1, 2020, TigerKing Corp. issued $930,000 face value, 6%, 5 year bonds. The bond interest is paid on June 30 and December 31. The bonds sold for $1,013,538. When the bonds were sold, the effective rate of interest was 4%. Under the effective-interest method, what formula would you use to calculate total interest expense?

the formulas used to calculate the interest expense:

interest amortization = (bond's market price or carrying value x effective interest) - (bond's face value x coupon rate) = premium on bonds payable (it is negative, so you must debit it)

interest expense = coupon rate + premium on bonds

in this case, the interest expense used to record the first and second coupon payments:

first coupon payment

($1,013,538 x 2%) - ($930,000 x 3%) = $20,271 - $27,900 = -$7,629

interest expense = $27,900 - $7,629 = $20,271

June 30, 2020

Dr Interest expense 20,271

Dr Premium on bonds payable 7,629

    Cr Cash 27,900

second coupon payment

($1,005,909 x 2%) - ($930,000 x 3%) = $20,118 - $27,900 = -$7,782

interest expense = $27,900 - $7,782 = $20,118

June 30, 2020

Dr Interest expense 20,118

Dr Premium on bonds payable 7,782

    Cr Cash 27,900

answercountries with higher real income per capita tend to have higher levels of this index.