Chapter 14, Problem 18E

Sub Part-1

To determine

Bonds Issuance:

The Bonds issuance by the company is a source of long term financing and is issued at a discount or premium depending the prevailing market rate of interest and stated rate of interest on bonds. When the stated rate of interest is lower than the market rate of interest, then the investors will be ready to invest only in the situation when the bonds are issued at discount. This discount on bonds issue shall be treated as expenses of the issuing company and need to be amortized over a period of bonds.

The total amount of discount on bonds issuance.

Sub Part-3

To determine

Effective Interest Method of Amortization of discount:

The Effective Interest method of amortization of discount is a technique of writing off the total discount over a period of bonds by computing the discount amortized in each period after deducting the cash interest paid in each period at stated rate from the interest expenses of each period at market rate of interest.

Amortization table:

The amortization table under straight line method reflects the discount amortized at each interest period, cash interest paid, total interest expense of each period, unamortized discount left at the end of period and carrying value of bonds in the books.

The Amortization table shall be prepared.