@aatoural – so back looking at the straight-line table. You start with the PV of the bond, 926,395.00 The difference between that and face (1,000,000) is the amount you amortize over 10 periods, 1,000,000-926,395=73,605; divide by 10 is 7,360.50 each period.
Now you're starting with a value BELOW face, so amortization will bring you TOWARD face, or up in value, so you add it to the carrying value each period. 926,392 + 7,360.50 = 933,755.50 – lather, rinse, repeat until you get to the face value.
The “balance sheet” column reminds you that the bond issuer owes interest every month based on the face value and coupon rate, or 50,000 each month – that's the CASH that changes hands. However, they have to put that amortization in the books somewhere, so they tack it on to the interest payment each month and book a higher “interest expense” than the 50,000 cash amount – the expense shown in the Income Statement column.
That difference is really the time value of money based on the market rate of interest instead of the coupon rate. When they purchaser pays a low price, they do it to earn a bigger return than the face rate would pay them, because the market is paying more for similar bonds. It takes so long to do all the legal/paper work to issue bonds though, that the issuer can't adjust the coupon rate fast enough to keep up with the market changes – so they sell the bonds at a higher or lower price so the return earned is with the market, in spite of what's written in the contracts and on the face.
Helpful, or more confusing??
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