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Bond computations: Straight-line amortization

by | Nov 30, 2023 | questions

Southlake Corporation issued $900,000
of 8% bonds on March 1, 20X1. The bonds pay interest on March 1 and September 1
and mature in 10 years. Assume the independent cases that follow.

·
Case A—The bonds are issued at 100.

·
Case B—The bonds are issued at 96.

·
Case C—The bonds are issued at 105.

Southlake uses the straight-line
method of amortization.

Instructions:

Complete the following table:

Case A

Case B

Case C
  1. Cash inflow on the issuance date

_______

_______

_______
  1. Total cash outflow through
    maturity

_______

_______

_______
  1. Total borrowing cost over the
    life of the bond issue

_______

_______

_______
  1. Interest expense for the year
    ended December 31, 20X1

_______

_______

_______
  1. Amortization for the year
    ended December 31, 20X1

_______

_______

_______
  1. Unamortized premium as of
    December 31, 20X1

_______

_______

_______
  1. Unamortized discount as of
    December 31, 20X1

_______

_______

_______
  1. Bond carrying value as of
    December 31, 20X1

_______

_______

_______
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