The Althenon Corporation issues bonds with a $1 million face value on January 1, Year One. The bonds pay a stated interest rate of 5 percent each year on December 31. They come due in eight years. The Zephyr Corporation also issues bonds with a $1 million face value on January 1, Year One. These bonds pay a stated interest rate of 8 percent each year on December 31. They come due in eight years. Both companies actually issue their bonds to yield an effective annual interest rate of 10 percent. Both companies use the effective rate method. The present value of $1 at a 10 percent interest rate in eight years is $0.46651. The present value of an ordinary annuity of $1 at a 10 percent interest rate over eight years is $5.33493.

a. What interest expense does Althenon report for Year One and also for Year Two?

b. What interest expense does Zephyr report for Year One and also for Year Two?