The balance sheet accounts of Rockwall Corporation at the beginning and end of 2016 are: 31-Dec-16 1-Jan-16

Cash $99,435 $110,700

Accounts Receivable $424,600 $380,900

Inventory $635,740 $576,475

Prepaid Expenses $20,000 $12,000

Investment in subsidiary $200,000 $0

Held to Maturity Debt Securities $16,460 $14,850

Land $100,000 $100,000

Buildings $525,000 $400,000

Equipment $381,000 $290,000

Patents $86,000 $70,000

Trademarks $25,000 $35,000

Bond Discount and issue costs $1,165 $6,075

Total Debits $2,514,400 $1,996,000

Accounts payable $534,000 $508,000

Income Taxes payable $68,000 $34,500

Salaries and wages payable $73,500 $12,900

Allowance for doubtful accounts $25,000 $23,000

Accumulated depreciation - buildings $248,000 $230,000

Accumulated depreciation - equipment $160,000 $103,000

Long-term notes payable $75,000 $75,000

Bonds payable $400,000 $300,000

Premium on bonds payable $7,762 $0

Common stock $150,000 $125,000

Paid-in capital in excess of par-common stock $568,000 $418,000

Retained earnings $205,138 $166,600

Total credits $2,514,400 $1,996,000

You also have the following information:

1. On November 1, 2016, 25,000 shares of $1 par stock were sold for $175,000.

2. A patent was purchased for $31,000

3. During the year, equipment that had a cost basis of $26,400 and on which there was accumulated depreciation of $5,800 was sold for $15,000. No other plant assets were sold during the year.

4. The 10%, $300,000 40-year bonds were dated and issued on January 2, 2003. Interest was payable on June 30 and December 31. They were sold originally at 97. These bonds were retired at 101 plus accrued interest on May 31, 2016.

5. The 6%, $400,000 20-year bonds were dated January 1, 2016, and were sold on May 31 at 102 plus accrued interest. Interest is payable semiannually on June 30 and December 31. Expense of issuance was $1,200.

6. Rockwall Corporation acquired 60% control in Jones Company on January 2, 2016, for $146,000. The income statement of Jones Company for 2016 shows a net income of $90,000.

7. Extraordinary repairs to buildings of $12,600 were charged to Accumulated Depreciation Buildings.

8. Interest paid in 2016 was $31,000 and income taxes paid were $38,000.

9. Net income for the year totaled $76,538. Instructions a) From the information given, prepare a statement of cash flows using the indirect method. The company uses straight-line amortization for bond interest.

Please give some explanations especially on the bonds. I'm trying to understand.