Prembond Corp. issues £1,000,000 face value of five-year bonds, dated 1 January 2010, when the market interest rate is 4 percent. The sales proceeds are £1,044,518. The bonds pay 5 percent interest annually on 31 December.

1. What is the interest payment on the bonds each year?

2. What amount of interest expense on the bonds would be reported in 2010 and 2011 using the effective interest rate method?

3. Determine the reported value of the bonds (i.e., the carrying amount) at 31 December 2010 and 2011, assuming the effective interest rate method is used to amortise the premium.

4. What amount of interest expense on the bonds would be reported under the straight-line method of amortising the premium?