On January 1, 2016, Drennen, Inc., issued $2.6 million face amount of 7-year, 14% stated rate bonds when market interest rates were 12%. The bonds pay semiannual interest each June 30 and December 31 and mature on December 31, 2025. Table 6-4, Table 6-5 (Use appropriate factor from the table provided.)
a. Calculate the proceeds (issue price) of Drennen, Inc.'s, bonds on January 1, 2016, assuming that the bonds were sold to provide a market rate of return to the investor.
b. Assume instead that the proceeds were $2,568,000. Use the horizontal model to record the payment of semiannual interest and the related discount amortization on June 30, 2016, assuming that the discount of $32,000 is amortized on a straight-line basis.