On January 1, 2017, Alliance, Inc. issued $20,000,000 of 10%, 10 year bonds. The market rate (or effective rate) is 12%. Interest in paid once a year on December 31.

1. What is the contract rate of interest?

2. What is the market rate of interest?

3. What is the amount of each interest payment?

4. Calculate the sales price of the bonds? Did the bonds sell at par, a discount, or premium? Why?

5. Journalize the issuance of the bonds and explain how the bond issuance is reported on the financial statements