On July $1,2015,$ ABC Co$.$ issued $10-$year, $$4,574$ million maturity value, $3\%$ coupon bonds when the market rate was $2\%$ for a cash price of $$4,994$ million. Interest was payable semi$-$annually on Dec. $31$ and June $30.$ ABC also issued $$3,527$ million face value, $20-$year, zero coupon bonds on July $1,2017,$ that matured on June $30,2037,$ for a cash price of $$2,619$million. The effective market interest rate at issuance was $1\mathrm{.}5\%.$ ABC repurchased $$1,143$ million face value coupon bonds on June $30,2020$ for $$1,220$ million cash $($after interest was paid$)$ and $$582$ million in face value of the zero$-$coupon bonds on June $30,2021$ for a purchase price of $$432$ million cash.

$1.$ Show the calculations for how the cash prices were determined for both bond issuances and make the journal entries for each at issuance using discount or premium accounts if applicable. $($Do not net the discount$/$premium in the Bond Payable account$)$

$2.$ Prepare amortization schedules for both bond issuances beginning with the issuance date. Note interest is semi$-$ annual for the coupon bonds and you may assume annual for the zero$-$ coupon bonds. Be sure to include a column for the balance remaining in the bond discount or premium account as well as the book value. Use the effective interest method. Make sure your team reviews and agrees on these tables as they are used to answer questions $3$ through $6$ below.

$3.$ What amount of interest expense for the bonds did ABC report on its calendar year income statement in $2019$ for each bond separately and in total $($be careful as both bonds were issued in the middle of the year$)?$

$4.$ Interest expense is deductible on the corporate tax return. Assuming a corporate tax rate of $19\%$ in $2019,$ how much did ABC save in taxes by deducting the interest expense? What was the after$-$tax interest cost in $2019?$

$5.$ At the end of June $30,2020,$ what was the book value of the coupon bonds before the repurchase transaction? At the end of June $30,2021,$ what was the book value of the zero$-$coupon bond before the repurchase transaction? Name the two accounts and their respective balances from the Balance Sheet that combine to determine the book value for each bond. Reference your entry in question $1$ and your amortization tables for the unamortized premium$/$discount at these specific dates.

$6.$ Prepare the journal entries to record the repurchase of some of the debt in $2020$ and $2021.$ You must determine the percentage of the face value repurchased by dividing the repurchased amount by the original maturity value of the bonds. Please express that $\%$ with two decimal places. $[$Repurchasing some of the bonds before the maturity date is called $$early extinguishment$$ of the debt. The company makes a payment to the bondholders, who relinquish the bonds and their right to collect the face value at maturity, and the debt is removed from the books. To record the early extinguishment, the company makes a journal entry to remove the appropriate bond payable and discount$/$premium accounts, decrease cash by the amount paid to the bondholders, and record any gain or loss as the difference between the book value and cash received. Look at your answer to #$5$ and note that a portion of each account related to this debt must be removed from the books. $[$The journal entry is analogous to the entry you would use to remove a long$-$term asset, along with its accumulated depreciation, from the books when it is sold.$]$

$7.$ Explain why company managers might choose to issue zero$-$coupon bonds instead of interest$-$bearing bonds or coupon bonds instead of zero$-$ coupon bonds? Give pros and cons of each. Be sure to consider the situation from the bond issuer$$s viewpoint and not the bon