On the first day of its fiscal year, Mainland Company issued $12,500,000 of 10-year, 6% bonds to finance its operations of producing and selling video equipment, receiving cash of $11,611,724.79. Interest is payable semiannually. The bonds were issued at an effective interest rate of 7%. Mainland Company uses the effective interest method for bond discount amortization.
a. Journalize the entries to record the following:
1. Sale of the bonds.
2. First semiannual interest payment and discount amortization.
3. Second semiannual interest payment and discount amortization.
b. Determine the amount of the bond interest expense for the first year.
c. Will the interest expense for the second year be greater or less than the interest expense in the first year?