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  • Aug 12, 2013, 06:14 PM
    cielbleu95
    How to do straight line amortization
    I do not need the entire question answered, I just need help with the beginning after the semi-annual payments. I

    Chapter 2 Problem 1
    2. 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. Semiannual interest payments of $36000 = (900,000*8%*6/12)
    • Case A—The bonds are issued at 100. 900,000 * 100% = 900, 000
    • Case B—The bonds are issued at 96. 900,000 * 96% = 864, 000
    • Case C—The bonds are issued at 105. 900,000 * 105% = 945, 000

    Southlake uses the straight-line method of amortization.

    Instructions:
    Complete the following table:
    Case A Case B Case C
    a. Cash inflow on the issuance date _______ _______ _______
    b. Total cash outflow through maturity _______ _______ _______
    c. Total borrowing cost over the life of the bond issue _______ _______ _______
    d. Interest expense for the year ended December 31, 20X1 _______ _______ _______
    e. Amortization for the year ended December 31, 20X1 _______ _______ _______
    f. Unamortized premium as of December 31, 20X1 _______ _______ _______
    g. Unamortized discount as of December 31, 20X1 _______ _______ _______
    h. Bond carrying value as of December 31, 20X1 _______ _______ _______

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