Problem
On January 1, 2019, Western Manufacturing Company bought a piece of equipment by signing a non- interest-bearing $50,000, 12 month note. The face value of the note includes the price of the equipment and the interest. The effective interest rate is an annual rate of 8%, and the note is to be paid in two $25,000 semiannual installments on June 30 and December 31. The price of the equipment is the present value of the two payments discounted at the effective interest rate. What would Western record as interest expense as part of the June 30th installment of $25,000 (using the effective interest method)?