1) a) Spencer Company sells 10% bonds having a maturity value of $3,000,000 for $2,783,724. The bonds are dated January 1, 20x0, and mature January 1, 20x5. Interest is payable annually on January 1.

Instructions Determine the annual interest expense and discount amortization under the straight-line method.

b) Then Assume the same information as above.

Instructions Set up a schedule of interest expense and discount amortization under the effective-interest method. (Hint: The effective interest rate must be computed.)