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On January 1, 2017, Alliance, Inc. issued $5,000,000 of 8%, 20-year bonds. The market rate (or effective rate) is 8%. Interest in paid twice a

On January 1, 2017, Alliance, Inc. issued $5,000,000 of 8%, 20-year bonds. The market rate (or effective rate) is 8%. Interest in paid twice a year on July 1 and January 1.

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.

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