PowerTap Utilities is planning to issue bonds with a face value of $1,000,000 and a coupon rate of 10 percent. The bonds mature in 10 years and pay interest semiannually every June 1 and December 31. All the bonds were sold on January 1 of this year. PowerTap uses the effective-interest amortization method. Assume an annual market rate of interest of 12 percent.

Required:

1. What is the issuance price of the bonds on January 1?
2. What amount of interest expense is recorded on December 31 of this year?
3. Determine whether the company's debt-to-equity ratio and times interest earned ratio increase, decrease, or stay the same when (a) the bonds are issued and (b) interest expense is recorded and cash is paid to investors for interest?