On January 1 of this year, Houston Company issued a bond with a face value of $10,000 and a coupon rate of 5 percent. The bond matures in three years and pays interest every December 31. When the bond was issued, the annual market rate of interest was 4 percent. Houston uses the effective-interest amortization method.

Required:

1. Complete a bond amortization schedule for all three years of the bond’s life.

2. What amounts will be reported on the income statement and balance sheet at the end of Year 1 and Year 2?