Chapter 14, Problem 14.5E

(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.

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 net amount of the liability for Incorporation M that would be reported in the balance sheet as on 31^st December 2016.

(2)

To determine

To Calculate: The amount of Incorporation M would report in its income statement for the year ended December 31, 2016.

(3)

To determine

To Calculate: The Incorporation M would report the following amounts in its statement of cash flows for the year ended December 31, 2016: