Bond BasicsStraight-Line Method, Retirement, and Conversion P2. Sasina Corporation has $8,000,000 of 9.5 percent, 25-year bonds dated May 1, 2014, with interest payable on April 30 and October 31. The companys fiscal year ends on December 31, and it uses the straight-line method to amortize bond premiums or

discounts. The bonds are callable after 10 years at 103, or each $1,000 bond is convert- ible into 40 shares of $10 par value common stock.

Required 1. Assume the bonds are issued at 103.5 on May 1, 2014. a. How much cash is received? b. How much is Bonds Payable? c. What is the difference between a and b called, and how much is it? d. With regard to the bond interest payment on October 31, 2014: (1) How much cash is paid in interest? (2) How much is the amortization? (3) How much is interest expense? 2. Assume the bonds are issued at 96.5 on May 1, 2014. a. How much cash is received? b. How much is Bonds Payable? c. What is the difference between a and b called, and how much is it? d. With regard to the bond interest payment on October 31, 2014: (1) How much cash is paid in interest? (2) How much is the amortization? (3) How much is interest expense? 3. Assume the issue price in requirement 1 and that the bonds are called and retired 10 years later. a. How much cash will have to be paid to retire the bonds? b. Is there a gain or loss on the retirement, and if so, how much is it?

4. Assume the issue price in requirement 2 and that the bonds are converted to com- mon stock 10 years later.

a. Is there a gain or loss on conversion, and if so, how much is it? b. How many shares of common stock are issued in exchange for the bonds? c. In dollar amounts, how does this transaction affect the total liabilities and the total stockholders equity of the company? In your answer, show the effects on four accounts.