Chapter 14, Problem 2CPA

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.

Interest Expense

The cost of debt which is incurred during a particular accounting period is called interest expense. The interest amount is a fixed interest rate payable on the principal amount of debt. It is calculated using the following formula:

$\text{Interest expense}=\text{Principal amount}\times \text{Interest rate}\times \text{Interest time period}$

To Determine: The interest time period for the bonds.