Chapter 10, Problem 10.6BP

(a)-(1)

To determine

Bonds

Bonds are a kind of interest bearing notes payable, usually issued by companies, universities and governmental organizations. It is a debt instrument used for the purpose of raising fund of the corporations or governmental agencies. If selling price of the bond is equal to its face value, it is called as par on bond. If selling price of the bond is lesser than the face value, it is known as discount on bond. If selling price of the bond is greater than the face value, it is known as premium on bond.

Straight-line amortization bond

Straight line method of amortization is a process of amortizing premium on bond or discount on bond, which allocates the same amount of interest expense in each period of interest payment.

Effective interest rate of amortization bond

Effective interest rate method of amortization is a process of amortizing premium on bond or discount on bond, which allocates the different amount of interest expense in each period of interest payment, but a constant percentage rate.

To Prepare: The journal entry to record the issuance of bonds on July 1, 2015.

(a)-(2)

To determine

To Prepare: The journal entry to record the accrued interest expense and amortization of the premium on December 31, 2015.

(a)-(3)

To determine

To Prepare:  The journal entry to record the payment of interest and amortization of premium on July 1, 2016, assume that interest were not accrued and recorded on June 30.

(a)-(4)

To determine

To Prepare: The journal entry to record the accrued interest expense and amortization of premium on bond, on December 31, 2016.

(b)

To determine

To show: The proper balance sheet presentation for the liability for bonds payable on 31^st December 2016 of Company A.

(c)-(1)

To determine

The amount of interest expenses that would be reported for 2016.

(c)-(2)

To determine

To Ascertain: If the bond interest expense reported in the year 2016 is greater than the amount reported, lesser than the amount reported or same amount reported, if the Company used the straight-line method of amortization.

(c)-(3)

To determine

The total cost of borrowing over the life of the bond.

(d)-(4)

To determine

To identify: Whether the total bond interest expense is greater, equal or lesser than the total interest expense if the straight-line method of amortization were used.