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(Please show work) On January​ 1, 2020​, Clare Corporation issued $700,000​, 6​%, 5​-year bonds. The bond...

(Please show work)

On January​ 1, 2020​, Clare Corporation issued $700,000​, 6​%, 5​-year bonds. The bond interest is payable on January 1 and July 1. The bonds sold for $762,878. The market rate of interest when the bonds were issued was 4​%. Under the​ effective-interest method, the interest expense for the six months ending July​ 1, 2020​, would be closest to?

            $15,258

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Under effective interest rate method, to arrive at each accounting periods interest expense, effect interest rate (Yield rate or market rate) is multiplied times the bonds book value at the start of an accounting period. When a bond is sold at premium (income), the entire premium amount has to be amortized over the life of the bond. The amortized bond premium amount (which is income) decreases (or set off) the interest expense of that period. Book Value of the bond- $762,878>as of January 1, 2020 (at the beginning of the accounting period) Face Value of Bond- Bond Premium = $762,878 _ $700,000 $62,878 → Income-) to be Apportioned over the life the bond Effective interest rate (or) Yield rate (or) market interest rate-4%, per annum Interest expense to be recognized for the 6 months Bonds book value at the beginning of year 2020 x Market interest rate 6 mont hs -$762,878 x 4% x ( 12 mont hs -S 15,257.56 → rounding to 0 decimal places-) $15,258 The interest expense for the six months ending July 1, 2020 $15,258 Note 6 mont hs However, actual interest paid to bond holders on July 1, 2020-$700,000 x 6% x [ The difference of S5,742 ($21,000 - $15,258) represents the amortized amount of bond premium for six months ending on July1, 2020 In other words, out of total bond premium of $62,878, the amortized amount of premium for the 6 months ended on July 1, 2020 is $5,742

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