Question
Molly Katherine Company made the following journal entry on December 31 of 2021 and 2022 to record interest on bonds payable. Interest Expense 13,000 Cash
Molly Katherine Company made the following journal entry on December 31 of 2021 and 2022 to record interest on bonds payable.
Interest Expense 13,000
Cash 13,000
The bonds have a face value of $325,000 and pay a stated interest rate of 4% ($13,000 per year). They were issued for $305,500 on January 1, 2021, and have an effective interest rate of 5%. Assume that Molly Katherine Co. should have used the effective interest method to compute interest expense.
Based on these facts, how much additional interest expense does Molly Katherine Co. need to record for 2021 and 2022 respectively?
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