Problem 1 - The Sis Company issued $600,000 of 12% bonds on January 1, 2008. The bonds were sold for $664,190 and they were expected to yield 10% interest compounded semiannually. The actual interest dates are June 30 and December 31. The maturity date of the bonds is December 31, 2012.
A. Please prepare the journal entry to record the issuance of the bonds.
B. In using the effective-interest method, prepare the journal entries to record the first two interest payments.
Problem 2 - In one paragraph, please explain the effect on a bonds selling price which is caused by the stated effective rate.