On January 1, 2017, Banek Inc. issued $350,000 of 8%, 9-year bonds for $309,086, which implies a market (yield) rate of 10%. Semiannual interest is payable on June 30 and December 31 of each year. a.Show computations to confirm the bond issue price. b.Indicate the financial statement effects using the template for (1) bond issuance, (2) semiannual inter- est payment and discount amortization on June 30, 2017, and (3) semiannual interest payment and discount amortization on December 31, 2017.

Amortization refers to an accounting methodology that is employed to lower the book value of a loan or an intangible asset over a set period of time, in a periodic fashion.

It is important because it helps the decision makes to comprehend and predict or forecast or anticipate their future costs over a space of time.

The calculations are as follows:

1) . PV of principal = 350,000 x (0.04 x 18)

PV of principal = 350,000 x 0.41552

PV of principal = $145,432

PV of interest = 350,000 x 0.08/2 x (0.05, 18)

PV of interest = 350,000 x 0.04 x 11.68959

PV of interest = $163,654

Issue price = 145,432 + 163,654

Issue price = $309,086

2) Recall that Interest payable = Principal amt. x rate x time period

Interest payable = 350,000 x 0.08 x 6/12 (semiannual)

Interest payable = $14,000

Interest expense = bond carrying amt. x rate x time

Interest expense = 309,086 x 0.08 x 6/12

Interest expense = $15,454

3. Amortization = Interest expense-Interest payable

Amortization = 15,454-14,000

Amortization = $1,454;

Interest expense = (309,086+1,454) x 0.10 x 6/12

Interest expense = $15,527.

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