Netwerk Inc. issued $1,500,000 of 5-percent, 10-year bonds payable and received cash proceeds of $1,388,419 on March 31, 2014. The market interest rate at the date of issuance was 6 percent, and the bonds pay interest semiannually.

1. Did the bonds sell at a premium or a discount?

2. Prepare an effective-interest amortization table for the bond discount, through the first two interest payments. Use Exhibit 15-4 as a guide, and round amounts to the nearest dollar. Students can use a financial calculator if so instructed.

3. Record Netwerk Inc.'s issuance of the bonds on March 31, 2014, and on September 30, 2014, payment of the first semiannual interest amount and amortization of the bond discount. Explanations are not required.

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EXHIBIT 15-4 Effective-Interest Method of Amortizing a Bond Discount Panel A: Bond Data Maturity value $1,000,000 Stated (contract) interest rate-5% Interest paid-2.5% semiannually-$25,000 ($1,000,000 × 0.025) Market interest rate at time of issue 6% annually, 3% semiannually Issue price-$957,349 Panel B: Amortization Table в D Unamortized Interest Interest Discount Payment Semiannual (2.5% of Maturity Value) Expense (3% of Bond Account Carrying Discount Balance Interest Preceding Bond Amortization (Preceding Amount D - Current C) ($1,000,000 – D) $ 957,349* Carrying Amount) Period (B – A) Issue Date $42,651 $25,000 $28,720 $3,720 38,931 961,069 2 25,000 28,832 3,832 35,099 964,901 3 25,000 28,947 3,947 31,152 968,848 4,065 27,087 972,913 4 25,000 29,065 25,000 29,187 4,187 22,900 977,100 25,000 29,313 4,313 18,587 981,413 25,000 29,442 4,442 14,145 985,855 4,576 9,569 8 25,000 29,576 990,431 25,000 29,713 4,713 4,856 995,144 10 25,000 29,856 4,856 1,000,000