
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.
Requirement:
The
Straight line Amortization of discount:
The Straight line amortization of discount is a technique of writing off the total discount over a period of bonds with an equal amount on each interest period. This equal amount can be computed by dividing the total amount of discount by the number of interest periods over a life of bonds.
The cash interest, straight line amortized discount and Interest expense for each interest period to be computed.
Total interest expense over the life of bonds:
The total interest expense over the life off bonds can be computed by the adding up the all the amount paid over the lifetime of the bonds i.e. cash interest payment and maturity
The Total interest expenses over the life of the bonds.
Amortization table:
The amortization table under
The Amortization table shall be prepared.
Accounting treatment of interest payment and amortized discount:
The Accounting entry required to be passed at each interest period is debiting the total interest expense as per amortization chart and credit being made to the cash account for cash interest paid and Discount on bonds payable for the amount of discount amortized.
The Journal entries for two interest payments.

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Chapter 14 Solutions
Fundamental Accounting Principles
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