Cybernetics Inc. issued $

$6$

$0$

$$million of

$5$

$\%$

$$three

$-$

year bonds, with coupon paid at the end of every year. The effective interest rate at the beginning of Years

$1$

$,$

$2$

$,$

$$and

$3$

$$was

$8$

$\%$

$,$

$5$

$\%$

$,$

$$and

$2$

$\%$

$.$

Required:

a

$.$

$$Determine what Cybernetics would have raised from the bond issue.

b

$.$

$$Assume Cybernetics decides to account for the bonds using the amortized cost method. Determine the interest and bond amortization for each of the three years.

c

$.$

$$Assume Cybernetics decides to account for the bonds using the fair value method. Determine the interest, unrealized gain

$/$

loss

$,$

$$and total expense for each of the three years.

d

$.$

$$Explain why the amounts charged to income every year differ under the two methods.