The notes to the Alliance Ltd. financial statements reported the following data on December 31, Year 1 (end of the fiscal year):

Alliance amortizes bond discounts using the effective-interest method and pays all interest amounts at December 31.

Requirements

1. Assume the market interest rate is 7% on January 1 of year 1, the date the bonds are issued.

a. Using the PV function in Excel, what is the issue price of the bonds?

b. What is the maturity value of the bonds?

c. What is Alliance’s annual cash interest payment on the bonds?

d. What is the carrying amount of the bonds at December 31, Year 1?

2. Prepare an amortization table through the maturity date for the bonds using Excel. How much is Alliance’s interest expense on the bonds for the year ended December 31, Year 4?

3. Show how Alliance would report these bonds and notes payable at December 31, Year 4.

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Note 6. Indebtedness Bonds payable, 3% due December 31, Year 8.. Less: Discount.. $2,000,000 Notes payable, 7%, payable in $50,000 annual installments starting in Year 5. 300,000 .