Valdez issues $450,000 of 13%, four-year bonds dated January 1, 2020, that pay interest semiannually on June 30 and December 31. They are issued at $493,608 when the market rate is 10%.

Required

1. Prepare the January 1 journal entry to record the bonds’ issuance.

2. Determine the total bond interest expense to be recognized over the bonds’ life.

3. Prepare an effective interest amortization table like the one in Exhibit 10B.2 for the bonds’ first two years.

4. Prepare the journal entries to record the first two interest payments. Analysis Component

5. Assume that the market rate at issuance is 14% instead of 10%. Without presenting numbers, describe how this change affects the amounts reported on Valdez’s financial statements.