Question: ABC Corp. issues $1,000,000 face value of five-year bonds, dated 1 January 2017, when the market interest rate is 4 percent. The sales proceeds are

ABC Corp. issues $1,000,000 face value of five-year bonds, dated 1 January 2017, 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 2017 and 2018 using the effective interest rate method?

3. Determine the reported value of the bonds (i.e., the carrying amount) at 31 December 2017 and 2018, assuming the effective interest rate method is used to amortise the premium.

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