On January $1,2010,$ Sunshine company issues bonds maturing in $10$ years. The par value of the bonds is $$500,000,$ the annual coupon rate is $10\%,$ and the compounding period is annually. The market initially prices these bonds using market interest rate $6\%.$ The market interest rate on December $31,2010$ increases to $7\%.$ On January $1,2017,$ the market interest rate decreases to $5\%,$ the company decides to retire early its bond and purchased back all the bonds on the secondary market.

$1.$ Were the bonds issued at par, at discount or at premium? Why? $(2$ points$)$

$2.$ Calculate the issue price. $(4$ points$)$

$3.$ Record journal entry on the date of issuance. $(3$ points$)$

$4.$ How would the above journal entry affect the financial statements $($balance sheets, income statement, cash flow statement$)?(3$ points$)$

$5.$ Calculate the interest expense on Dec $31,2010,$ and record the journal entry. $(4$ points$)$

$6.$ Will the interest expense increase or decrease over the years? Why? $(2$ point$)$

$7.$ How much does the company pay to retire the bond on January $1,2017?$ What is the book value of the bond liability on January $1,2017?$ Record journal entry on January $1,2017$ for early retirement of bonds. $(8$ points$)$