[sheddle]

I have taken an easy problem, saved it for last, and now gotten lost in it. I would really appreciate help getting back on the right track. I have done the reading over and over and at this point just need to get a push in the right direction. Of course there is more to this problem but I feel that once I get back on track I will be able to handle the rest of it. Thanks

The Problem: Elkins Company sold $2,500,000, 8%, 10-year bonds on July 1, 2011. The bonds were dated July 1, 2011, and pay interest July 1 and January 1. Elkins Company uses the straight-line method to amortize bond premium or discount. Assume no interest is accrued on June 30.
Instructions: Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2011, assuming the bonds sold at 104.
What I have done so far:
July 1, 2011
Dr Cash 2,600,000
Cr Bonds Payable 2,500,000
Cr Premium on Bonds Payable 100,000
(to record the sale of bonds at a premium)
Dec 31, 2011
Dr Bond Interest expense – have not figured out entry
Dr Premium on Bonds Payable 5,000
Cr Cash – have not figured out entry
(to record payment of bond interest and amortization of bond premium)

The way I see this problem is Elkins sold the bonds for 104% which is how I got the 2,600,000. I know that using the straight line method I would take that 100,000 and spread it over the number of payments. That would be 10 years at 2 payments each year for 5,000 – that is where I put the Premium on Bonds Payable. It is the 8% that is throwing me right now. Am I taking 8% of 2,500,000 and spreading that over the number of payments? 2,500,000 times 8% divided by 20? 125,000 as bond expense? So the total cash is 130,000? That does not sound right