Chapter 14, Problem 14.23EX

a (1)

To determine

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Discount on bonds payable: It occurs when the bonds are issued at a low price than the face value.

Effective-interest amortization method: Effective-interest amortization methodit is an amortization model that apportions the amount of bond discount or premium based on the market interest rate.

In this method, first, interest expense is calculated based on the current carrying amount and market interest rate and cash interest payment is calculated based on the face value amount and stated interest rate and then, the different between the cash interest payment and interest expense is amortized as a decrease to the discount or premium.

To Journalize:  Sale of the bonds.

b (2)

To determine

To Journalize: First semiannual interest payment and amortization of discount on bonds.

c (3)

To determine

To Journalize: Second semiannual interest payment and amortization of discount on bonds.

(b)

To determine

The amount of bond interest expense for first year.

C.

To determine

To explain: The reason why the company was able to issue the bonds for $43,495,895 rather than $50,000,000.