On January 1, 2014, Avaya Corporation issued $2,000,000 in bonds that mature in five years. The bonds have a stated interest rate of 6 percent and pay interest on December 31 each year. When the bonds were sold, the market rate of interest was 7 percent. The company uses the effective-interest amortization method.

Required:
1. What was the issue price on January 1, 2014?
2. What amount of interest expense should be recorded on ( a ) December 31, 2014? and ( b ) December 31, 2015?
3. What amount of cash interest should be paid on ( a ) December 31, 2014? and ( b ) December 31, 2015?
4. What is the book value of the bonds on ( a ) December 31, 2014? and ( b ) December 31, 2015?