(Learning Objectives 2, 3: Analyzing bond transactions) This (adapted) advertisement for a 20-year bond appeared in the Wall Street Chronicle.

Requirements 1. Journalize Holiday’s issuance of these bonds payable on March 15, 20X0.
2. Compute the semi-annual cash interest payment on the bonds.
3. Compute the semi-annual interest expense under the effective interest amortization method.
4. Compute both the fi rst-year (from March 15, 20X0, to March 15, 20X1) and the secondyear interest expense (March 15, 20X1, to March 15, 20X2) under the effective-interest amortization method. The market rate for similar bonds at the date of issuance was 13%.
Why is interest expense greater in the second year?