AP$9-5$ Computing Amounts for Bond Issue, and Comparing Amortization Methods $($P$9-8)$ Canadian Products Corporation manufactures office equipment and supplies. The company authorized a bond issue on January $1,$ year $1,$ with the following terms:

Maturity $($par$)$ value: $$120,000,000$

Interest: $7\mathrm{.}9$ percent per year payable each December $31$

Maturity date: December $31,$ year $5$

Effective$-$interest rate when sold: $8$ percent

Required:

Compute the bond issue price. Explain why both the stated and effective$-$interest rates are used in this computation.

Prepare the entry to record this bond issue without a bond discount or premium account.

Assume that the company used the straight$-$line method to amortize the discount or premium on the bond issue. Compute the following amounts for each of the five years:

a$.$ Interest paid

b$.$ Amortization of bond discount or premium

c$.$ Bond interest expense

d$.$ Carrying amount of the bond

$e.$ Interest expense as a percentage of the carrying amount at the beginning of the year The straight$-$line method is theoretically deficient when interest expense is related to the carrying amount of the debt. Explain.

$4.$ Assume instead that the company used the effective$-$interest method to amortize the discount or premium. Prepare an effective$-$interest bond amortization schedule similar to the one in the text. The effective$-$interest method provides a constant interest rate when interest expense is related to the net liability. Explain by referring to the bond amortization schedule.

$5.$ Which method should the company use to amortize the bond discount or premium? As a financial analyst, would you prefer one method over the other? If so$,$ why?