In this sum we have been provided wi the information that

On January 1, 2009, Sidley Co. issued $25,000 of 5-year,

8% bonds

interest payable on June 30 and December 31

The market rate of interest when the bonds were issued was 9%.

1. The effective interest rate method uses the market interest rate at the time that the bond was issued. In our example, the market interest rate on January 1, 2014 was 4.5% ( 9%/2) per semiannual period for 10 semiannual periods.
2. The effective interest rate is multiplied times the bond’s book value at the start of the accounting period to arrive at each period’s interest expense

interest expense was recorded on June 30, 2009, with respect to these bonds will be as follow

= $ 25,000 x 4.5%

=1125 $

entry will be as follow