Problem:

On January 1, 2013, Bradley Recreational Products issued $100,000, 9%, four-year bonds. Interest is paid semi-annually on June 30 and December 31. The bonds were issued at $96,768 to yield an annual return of 10%.

Required:

Question 1: Prepare an amortization schedule that determines interest at the effective interest rate.

Question 2: Prepare an amortization schedule by the straight-line method.

Question 3: Prepare the journal entries to record interest expense on June 30, 2015, by each of the two approaches.

Question 4: Explain why the pattern of interest differs between the two methods.

Question 5: Assuming the market rate is still 10%, what price would a second investor pay the first investor on June 30, 2015, for $10,000 of the bonds?

Note: Please provide through step by step calculations.