Hullihan Inc. issued $10 million of 10%, 20-year bonds on March 1, 20x0. The market yield on this date was 8%. Interest is paid semi-annually on March 1 and September 1 of each year. Bond issue costs, paid in cash, amounted to $250,000, and are amortized under the straight line method.

Instructions

1. What is the issue price?
2. Prepare a bond amortization schedule through March 1, 20x1.
3. Prepare journal entries related to the bonds through March 1, 20x1.
4. Suppose the interest method is used to amortize bond issue costs. Prepare an amortization schedule in Excel showing the periodic amortization of the bond premium and the bond issue costs. Also show that the net interest expense under this method results in an effective interest rate that reflects the net proceeds to the company (i.e., after bond issue costs).