On January 1 Montgomery Inc issued 200000 of 12 5year bonds

On January 1, Montgomery Inc. issued $200,000 of 12% 5-year bonds when the market interest
rate was 10%. The bonds pay interest semiannually on June 30th and December 31. Proceeds
received were $215,443.
These bonds were issued at a DISCOUNT/PREMIUM (circle one) because the Contract Rate is
EQUAL TO/ GREATER THAN/ LESS THAN (circle one) the Market Rate
Record the following transactions:
Bond issue on January 1
Paid semiannual interest on June 30
Amortized the bond premium or discount

Solution

These bonds were issued at a DISCOUNT/PREMIUM because the Contract Rate is EQUALTO / GREATER THAN / LESS THAN the Market Rate.  

Working:

Interest expense is recorded at the market rate on the book value of the bonds.

Cash is paid on the face value of the bonds at the contract rate.

The difference between the two is the amount of premium amortized.