Sandridge Company Issued Five-Year 8% Bonds with a Face Value

Sandridge Company issued five-year 8% bonds with a face value of $50,000, for $53,512 on January 1, 2013 when the market (effective) rate of interest was 7%. The bonds pay annual interest each December 31. Sandridge uses the effective interest method for amortization of premium or discount on bonds payable. (Round your answers to the nearest dollar.)
Required:
a) What is the annual amount of cash that Sandridge will pay out for interest?
b) What amount of interest expense and premium amortization should Sandridge recognize for 2013? What is the carrying amount of the liability on December 31, 2013?
c) What amount of interest expense and premium amortization should Sandridge recognize for 2014? What is the carrying amount of the liability on December 31, 2014?
d) What is the total amount of interest that Sandridge will record in interest expense over the life of the bond?

Correct Answer:

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a) $50,000 face value x $8% stated rate ...

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