On January 1, Year 1, Cascade Corp. issued $1,000,000 of 8% bonds at 95, with interest payable semiannually on June 30 and December 31. The bonds mature in 5 years. Cascade uses the effective interest method.<br/><br/>What is the carrying amount of the bonds on December 31, Year 1?

Bonds issued at discount have a carrying amount that increases over time as the discount amortizes. The effective interest method amortizes the discount based on the difference between interest expense (market rate × carrying amount) and cash interest paid (stated rate × face value). The question requires calculating the effective interest rate from the issue price.