On July 1, 2002, Cucumber Communications Equipment Inc. issued $10,000,000 of ten year, 9% bonds at an effective interest rate of 10%. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
1. Journalize the entry to record the amount of the cash proceeds from the sale of the bonds. (Round to the nearest dollar.)
2. Journalize the entries to record the following:
a) The first semiannual interest payment on December 31, 2002, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
b) The interest payment on June 30, 203, and the amortization of the bond discount using the straight-line method.
3. Determine the total interest expense of 2002.
4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? Explain.