Electrolux Corporation manufactures electrical test equipment. The companys board of directors authorized a bond issue on January 1, 2011, with the following terms (Use Table 1, Table 2):

Maturity (par) value: $811,000

Interest: 6 percent per annum payable each December 31

Maturity date: December 31, 2015

Effective-interest rate when sold: 10 percent

1. Compute the bond issue price.

2. Assume instead that the company used the effective-interest method to amortize the discount. Prepare an effective-interest bond amortization schedule similar to the one in the text. The effective-interest method provides a constant interest rate when interest expense is related to the net liability.