ACC 206 Week 2 Chapter 2 Problem 1 Bond computations: Straight-line amortization

Chapter 2 Problem 1: Bond computations: Straight-line amortization 

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. a.         Cash inflow on the issuance date            _______ _______ _______
2. b.        Total cash outflow through maturity       _______ _______ _______
3. c.         Total borrowing cost over the life of the bond issue      _______ _______ _______
4. d.        Interest expense for the year ended December 31, 20X1  _______ _______ _______
5. e.         Amortization for the year ended December 31, 20X1    _______ _______ _______
6. f.         Unamortized premium as of December 31, 20X1          _______ _______ _______
7. g.         Unamortized discount as of December 31, 20X1           _______ _______ _______
8. h.        Bond carrying value as of December 31, 20X1             _______ _______ _______