E15-14 This (partial and adapted) advertisement appeared in the Wall Street Journal. BEAR STEARNS This anther an omer to sell nor a solicitamos of an other to han any of the securities The offering is made only in the Prospectu New Issue $300,000,000 MARKIV INDUSTRIES INC. 13% Subordinated Debentures due March 31, 2010 interest payable March 31 and September 30 Price 98.50% March 31, 2000 A subordinated debenture gives rights to the bondholder that are more restricted than the rights of other bondholders. Required Answer these questions about Mark IV Industries' debenture bonds payable: 1. Suppose Mark IV Industries issued these bonds payable at their offering price on March 31, 2000. Describe the transaction in detail, indicating who received cash, who paid cash. and how much. 2. Why is the contract interest rate on these bonds so high? 3. Compute Mark IV Industries' annual cash interest payment on the bonds. 4. Compute Mark IV Industries' annual interest expense under the straight-line amortiza- tion method. 5. Prepare an effective-interest amortization table for Mark IV Industries' first two interest payments on September 30, 2000, and March 31, 2001. Use Exhibit 15-4 (page 589) as a guide and show all amounts in thousands. The market rate of interest on the bonds is 13.65% per year. 6. Compute Mark IV Industries interest expense for the first full year ended March 31, 2001. under the effective-interest method. Use the amortization table you prepared for requirement 5.