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Tarazi Company issued bonds with a contract interest rate of 10% and a face value of $200,000. The bonds mature in 20 years. The market
Tarazi Company issued bonds with a contract interest rate of 10% and a face value of $200,000. The bonds mature in 20 years. The market interest rate for bonds with the same degree of riskiness is 8% compounded annually. These bonds were issued on January 1 of Year 1 at a price of $239,272. Cash interest payments are made annually on December 31, so the first cash interest payment was made on December 31 of Year 1. Tarazi uses the effective-interest method on its books. The journal entry to record the first interest payment made on December 31 of Year 1 includes a Credit to Discount on Bonds of $1,261 Debit to Premium on Bonds of $1,362 Debit to Interest Expense of $20,000 Debit to Premium on Bonds of $19,073 Debit to Interest Expense of $19,142
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