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On January 1, 2019, Drennen Inc. issued $5 million face amount of 10-year, 14% stated rate bonds when market interest rates were 12%. The bonds pay semiannual interest each June 30 and December 31 and mature on December 31, 2028.

a. Calculate the proceeds (issue price) of Drennen Inc.'s bonds on January 1, 2019, assuming that the bonds were sold to provide a market rate of return to the investor. (Round PV factor to 4 decimal places.)

b-1. Assume instead that the proceeds were $4,820,000. Use the horizontal model to record the payment of semiannual interest and the related discount amortization on June 30, 2019, assuming that the discount of $180,000 is amortized on a straight-line basis. Indicate the financial statement effect.

b-2. Assume instead that the proceeds were $4,820,000. Record the journal entry to show the payment of semiannual interest and the related discount amortization on June 30, 2019, assuming that the discount of $180,000 is amortized on a straight-line basis.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

c. If the discount in part b were amortized using the compound interest method, would interest expense for the year ended December 31, 2019, be more than, less than, or equal to the interest expense reported using the straight-line method of discount amortization?

Multiple Choice

• Interest expense will be less.

• Interest expense will be more.

• Interest expense will be the same.

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