On January 1, Year 6, Pearson Corporation Issued $1,000,000 Face $\quad$

On January 1, Year 6, Pearson Corporation issued $1,000,000 face value, 20-year bonds.The bonds carry coupon interest of 6 percent per year, payable semiannually on June 30 and December 31.The bonds were initially priced on the market to yield 8 percent, compounded semiannually (for an effective annualized yield greater than 8 percent).
Required:

a. Compute the issue price of these bonds on January 1, Year 6.
b. Compute the amount of interest expense on these bonds for Year 6, assuming that the firm uses the effective-interest method of amortizing bond premium or discount.
c. Assume for this part that the firm recorded interest expense in Part b. in an amount equal to interest paid for the year. That is, it failed to record amortization of bond premium or discount. Indicate the effect (direction and amount) of this omission on the line items in the statement of cash flows using "O/S" (overstated), "U/S" (understated), or "No" (no effect). Ignore income taxes.
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Direction $\quad$$\quad$$\quad$$\quad$$\quad$ Amount
1) Net Income
2) Adjustments that are added to net income
3) Adjustments that are subtracted from net income
4) Cash Flow from Operations