Okay the question is like so:

On January 1, 2014, Murphy Company issued $1,600,000 face value, 7%, 10-year bonds at $1,717,761. This price resulted in an 6% effective-interest rate on the bonds. Murphy uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1

I need to: Prepare the journal entry to record the accrual of interest and amortization of the premium on december 31 2015

first entry on issuance would be:
Cash................................................................$1,717,761
............... Premium on Bonds Payable .............................................. $117,761
................Bonds Payable................................................................... $1,600,000

To figure out the year end entries its best to make a schedule as such

Beginning ---- -----7% Face interest rate (1.6m * 7%)---------- 6% effective Rate (1,717,761 * 6%)-----------Difference:Amortization--------------Ending Value( subtract amortization)
$1,717,761..................................... $112,000....................................................-$103,065.66..................................................-$8,934.34..........................................$1,708,826.66


Entry would be:

Bond Interest Expense................................. $103,065.66
Premium on Bonds Payable...........................$8,934.34
...........................................Cash........................................................ $112,000

This post was edited by Godz_ArmyTank on Dec 11 2015 03:13pm