(Learning Objectives 2: Measuring cash amounts for a bond payable (premium);

amortizing the bonds by the straight-line method) Federal Bank has $500,000 of 7%

debenture bonds outstanding. The bonds were issued at 103 in 20X0 and mature in 20Z0

(i.e. 20 years later).

❙ Requirements 1. How much cash did Federal Bank receive when it issued these bonds?

2. How much cash in total will Federal Bank pay the bondholders through the maturity date of the bonds?

3. Take the difference between your answers to Requirements 1 and 2. What does this number represent?

4. Estimate the Federal Bank’s interest expense using the straight-line amortization method for the fi rst two interest payments.