Chapter 14, Problem 14.25EX

(a)

To determine

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Premium on bonds payable: It occurs when the bonds are issued at a high price than the face value.

Effective-interest method of amortization: It is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value.

To calculate: The amount of cash proceeds (present value) from the sale of the bonds.

(b)

To determine

To calculate: The amount of premium to be amortized for the first semiannual interest payment period.

(c)

To determine

To calculate: The amount of premium to be amortized for the second semiannual interest payment period.

(d)

To determine

The amount of bond interest expense for first year.