Problem $10-30$A $($Static$)$ Straight$-$line amortization of a bond discount LO $10-4$

During Year $1$ and Year $2,$ Agatha Corporation completed the following transactions relating to its bond issue. The corporation$$s fiscal year is the calendar year.

Year $1$

January $1$ Issued $$300,000$ of $10-$year, $6$ percent bonds for $$294,000.$ The annual cash payment for interest is due on December $31.$

December $31$ Recognized interest expense, including the straight$-$line amortization of the discount, and made the cash payment for interest.

December $31$ Closed the interest expense account.

Year $2$

December $31$ Recognized interest expense, including the straight$-$line amortization of the discount, and made the cash payment for interest.

December $31$ Closed the interest expense account.

Required

a$-1.$ When the bonds were issued, was the market rate of interest more or less than the stated rate of interest?

a$-2.$ If Agatha had sold the bonds at their face amount, what amount of cash would Agatha have received?

b$.$ Prepare the liabilities section of the balance sheet at December $31,$ Year $1$ and Year $2.$

c$.$ Determine the amount of interest expense that will be reported on the income statements for Year $1$ and Year $2.$

d$.$ Determine the amount of interest that will be paid in cash to the bondholders in Year $1$ and Year $2.$