On January 1, 2013, Bradley Recreational Products issued $100,000, 9%, four-year bonds. Interest is paid semi-annually on June 30 and December 31. The bonds were issued at $96,768 to yield an annual return of 10%.
Required:
1. Prepare an amortization schedule that determines interest at the effective interest rate.
2. Prepare an amortization schedule by the straight-line method.
3. Prepare the journal entries to record interest expense on June 30, 2015, by each of the two approaches.
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4. Explain why the pattern of interest differs between the two methods.
5. Assuming the market rate is still 10%, what price would a second investor pay the first investor on June 30, 2015, for $10,000 of the bonds?