Chapter 14, Problem 9E

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 higher than the market rate of interest, then the investors will be ready to invest only in the situation when the bonds are issued at premium. This premium on bonds issue shall be treated as income by deducting the amortized portion from the cash interest paid to arrive at the interest expense of the period.

The Total amount of premium on bonds 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 bonds.

Sub Part-3

To determine

Straight line Amortization of Premium:

The Straight line amortization of Premium 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.

Amortization table:

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

The Preparation of amortization schedule.