Answer:
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
