Exercise 8: Complete the following problem. A $20,000, 2 year, 10% (Stated rate) bond is sold when the Effective (Market) rate is 8%. The bond pays interest semi-annually. Assuming a price of 104 at issuance record the following. 1. Entry required upon issuance of the bond. Cash proceeds: $ 2. Entry on the first interest payment date. Use STRAIGHT-LINE method for amortization. a. Actual Interest payment % x 6/12 = $ b. Amortization of the Premium using the STRAIGHT-LINE method. $ periods= $ 3. Entry on the second interest payment date. Use STRAIGHT-LINE method for amortization. a. Actual Interest payment b. Amortization of the Premium using the STRAIGHT-LINE method. Cash Premium on Bonds Payable Bonds Payable Interest Expense Next, use the t-accounts below the table to repeat the same three steps (from above) but this time use the EFFECTIVE INTEREST RATE METHOD. Round any calculations to the nearest dollar. Interest Pymt A 10% x $20K 12 Interest Paid B 8% x Col.E D E (B-A) (D-C) ($20K + D) 12 Interest Expense Premium Amortization Premium Balance 800 Carrying Amount 20,800 1 2 Cash T Premium on Bonds Payable Bonds Payable Interest Expense