On January 1, 2013, Ponasis Corporation issued $2.5-million, 10-year bonds. The bonds pay semi-annual interest on July 1 and January 1, and Ponasis has a December 31 year end. Presented below is a partial amortization schedule.

(a) Were the bonds issued at a discount or a premium?
(b) Fill in the missing amounts for [1] through [5].
(c) What is the face value of the bonds?
(d) What is the contractual rate of interest?
(e) What was the market interest rate when the bonds were issued?
(f) Record the issue of the bonds on July 1, 2013.
(g) Record the interest payment on July 1, 2014.
(h) Record the accrual of interest on December 31, 2014.
(i) What amounts would be reported as current and non-current in the liabilities section of Ponasis's December 31, 2014, balance sheet?
(j) Record the interest payment on January 1, 2015.
(k) Assuming that immediately after the interest payment the bonds were redeemed on January 1, 2015, when the market interest rate was 5%, calculate the amount Ponasis paid to redeem the bonds. (l) Record the redemption of the bonds on January 1, 2015.
Taking It Further
Why would Ponasis's board of directors not have set the contractual interest rate at the market interest rate on the date of issue when it authorized the bond issue?

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Semi-Annual Bond Amortized Cost Interest Period Interest Payment Interest Expense Amortization January 1, 2013 July 1, 2013 January 1, 2014 July 1, 2014 January 1, 2015 July 1, 201:5 January 1, 2016 $[2] 53,920 53,748 53,573 53,394 53,212 2,695,981 2,687,401 2,678,649 $62,500 $8,412 8,580 8,752 62,500 62,500 62,500 62,500 9,106 9,288 2,660,616 2,651,328