Chapter 14, Problem 4E

Sub Part-1

To determine

Discount on 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 discount shall be computed by deducting the issue price from the nominal value of bonds.

The Total discount on bonds payable at the time of issuance.

Sub Part-2

To determine

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 value of bonds and then the amount borrowed at the time of issuance of bonds shall be deducted from the above computed amount to arrive at the amount of total interest expense over the life of the bonds.

The Total interest expenses over the life of the bonds.

Sub Part-3

To determine

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.