Question
Tarazi Company issued bonds with a coupon rate of 10% and a face amount of $200,000. The bonds mature in 15 years. The market interest
Tarazi Company issued bonds with a coupon rate of 10% and a face amount of $200,000. The bonds mature in 15 years. The market interest rate for bonds with the same degree of riskiness is 8% compounded annually. Coupon payments are made annually on December 31, so the first coupon 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 coupon payment made on December 31 of Year 1 includes a
Debit to Interest Expense of $20,000
Debit to Interest Expense of $18,739
Debit to Premium on Bonds of $1,362
Credit to Discount on Bonds of $1,261
Debit to Premium on Bonds of $18,638
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