Week 13 Accounting Workshop: The Bicycle Shop's Bonds, Period by Period

Part 1 — The Big Picture

This week you learned how a business records money it borrows for years by issuing bonds, and why lenders may pay less or more than the face value. In this workshop you work one bond issue end to end: the bicycle shop's $100,000 of 5-year, 6 percent bonds. You build the discount case's amortization schedule in a free spreadsheet, write the issue, interest, and maturity entries so every one balances, compare the three issue prices side by side, read what the schedule shows in one plain sentence, and then check a chatbot's version of the same work. The record-and-post work carries the entries, the adjust-and-report work carries the schedule and the balance sheet line, and the analyze-and-explain work happens in your reading of the three cases and your critique.

Time budget: Plan for about 90 minutes.

Part 2 — The Task

Guiding question: How much does borrowing $100,000 for five years really cost the bicycle shop when its bonds sell at face, at a discount, or at a premium, and how does the carrying value move to the face?

Workshop data: Dataset J, the bicycle shop's $100,000 bond issue (illustrative)

Source: The running case after a later expansion: an illustrative, unnamed bicycle repair and sales shop, organized as a corporation by two founders, issuing 5-year bonds that pay interest semiannually; it describes no real business.

• Rows: 10 semiannual interest periods for each of three issue prices; the amortization table has 10 rows, the entry table has 5 rows, and the comparison table has 3 rows
• Face value and stated rate: $100,000 of 5-year bonds at a 6 percent stated rate, paying interest semiannually
• Cash interest: $3,000 each period, for 10 periods
• Issue prices: $100,000 at face, $96,000 at a discount, and $104,000 at a premium
• Amortization method: straight-line, over the 10 periods

Part 3 — Materials & Procedure

Tools and materials

• A free spreadsheet (Google Sheets, or any free spreadsheet) for journals, T-accounts, trial balances, schedules, and statements, with every total computed by formula; the SEC's free EDGAR search for public companies' annual reports; and one approved chatbot used as a sparring partner whose entries, totals, and claims about standards and tax rates the student checks by hand and against the pinned source before trusting them
• A free spreadsheet (Google Sheets, or any free spreadsheet)
• One approved chatbot

Ways of working

• record-and-post
• adjust-and-report
• analyze-and-explain

Procedure

1. Read Dataset J in Part 2 twice. In your own words, write one line for each of the three issue prices saying whether the market rate was equal to, higher than, or lower than the 6 percent stated rate. Check: Three short lines naming face, discount, or premium for each price.
2. Open a new sheet and copy the amortization table from Part 4 for the bonds issued at $96,000. In the first row put the starting carrying value, the cash interest, and the amortization, then write formulas for the interest expense and the ending carrying value. Tool: A free spreadsheet (Google Sheets, or any free spreadsheet). Check: Row 1 filled by formula, with an ending carrying value one period's amortization above the start.
3. Make each row's starting carrying value equal the row above's ending value, fill every formula down through period 10, and total the cash interest, amortization, and interest expense columns with SUM formulas. Tool: A free spreadsheet (Google Sheets, or any free spreadsheet). Check: The last row ends at the $100,000 face, and the expense column total equals the cash column total plus the amortization column total.
4. On a second tab, copy the entry table from Part 4 and write each entry with the debits first and the credits indented below; add a check cell for each entry that subtracts total credits from total debits. Tool: A free spreadsheet (Google Sheets, or any free spreadsheet). Check: Five entries, each with a check cell showing 0.
5. Complete the comparison table for the three issue prices, then answer the analysis questions in Part 5, including the plain sentence that says what the schedule shows. Check: A completed comparison table and written answers to all five questions.
6. Paste your tables and then the Part 6 prompt into one approved chatbot. Compare every entry, every total, and every claim about a standard, a rate, or a classification with your own work and with Chapter 13, and write the critique report, or complete the equivalent route instead. Tool: One approved chatbot. Check: A three-to-five-sentence report that quotes at least two of the chatbot's slips and corrects each by hand, or the marked-up equivalent-route analysis.

Fallback route

When to use it: Use this route if you cannot open a spreadsheet or print the tables.

Copy the three tables by hand onto paper or into any text file, read Dataset J from this page, fill the schedule one row at a time by hand, add each column twice, and complete every entry, analysis question, and the critique step in the same order. Submit a photo or scan of the paper, or the text file, for equal credit.

This route earns the same credit as the primary route.

Part 4 — The Scaffold

Build the discount case one period at a time, so you can watch the carrying value climb to the face.

Student scaffold table 1

Period	Carrying value at start	Cash interest	Amortization	Interest expense	Carrying value at end
1	96,000
2
3
4
5
6
7
8
9
10

Record each event with equal debits and credits, so every entry can be checked before it is trusted.

Student scaffold table 2

Entry	What it records	Accounts debited and amounts	Accounts credited and amounts
1	Bonds issued for $96,000
2	First period's interest, issued for $96,000
3	Bonds issued for $104,000
4	First period's interest, issued for $104,000
5	Repayment of the face at maturity

Set the three issue prices side by side, so the cost of the same borrowing can be compared in one view.

Student scaffold table 3

Issue price	Discount or premium	Interest expense per period	Total interest expense over 10 periods	Carrying value after the first period
$100,000 (at face)
$96,000
$104,000

Part 5 — Analysis Questions

1. Compute the discount case's interest expense per period and its carrying value after the first period and after the tenth, and foot the three column totals of your schedule, showing each addition.
2. Compute the total interest expense for the bonds issued at $96,000 and at $104,000 two ways: from your schedule or your comparison table, and from the total cash paid out minus the cash received.
3. Explain why the discount raises interest expense and the premium lowers it, and why neither the discount nor the premium is a gain, a loss, or revenue on the day the bonds are sold.
4. Write one plain sentence saying what your schedule shows. Then say in words how the pattern of interest expense would change if the shop used the effective-interest method, the method GAAP calls for, instead of straight-line, and what would stay the same.
5. Choose one reflection: (a) which entry did your first instinct get backward, and what changed your mind? or (b) name one thing the straight-line schedule cannot show a reader, and say where in this week's material that gap is covered.

Part 6 — AI-Critique Moment

Choose one equal-credit critique route. Route A: ask an approved AI tool to critique your completed work, then check its response against your own evidence. Route B is the no-AI equivalent printed below.

Approved tools: Claude, Gemini, ChatGPT, Grok, Microsoft Copilot.

Prompt to paste:

I've pasted my completed amortization schedule, journal entries, and comparison table above. Here is an illustrative bicycle shop that issues $100,000 of 5-year, 6 percent bonds paying interest semiannually, so 10 periods of $3,000 cash interest. Suppose it sells them for $96,000 and amortizes the discount by the straight-line method; then suppose instead it sells them for $104,000. For each case, please write the issue entry and the first period's interest entry, give the interest expense per period, the carrying value after the first period, and the total interest expense over the 10 periods, and say where the bonds and any discount or premium appear on the balance sheet. Then tell me whether the $104,000 sale means the shop earned revenue, whether the $3,400 of interest expense in the discount case is the cash the shop pays each period, which accounting standard number requires the effective-interest method, what Social Security rate and wage base apply to the mechanic's wages in 2026, whether the depreciation on the shop's new equipment means the equipment is worth less, and whether the shop could use LIFO for its bicycles under IFRS.

Test the response for these likely failures:

• Chatbots sometimes credit Discount on Bonds Payable at issue, or debit Premium on Bonds Payable at issue, treating the two accounts the same way.
• Chatbots often write the discount case's interest entry as Interest Expense 3,400 against Cash 3,000 and leave out the amortization line.
• Chatbots sometimes treat the $104,000 received, or its $4,000 premium, as revenue when the cash arrives.
• Chatbots sometimes put the whole $4,000 discount into the first period's interest expense, or leave it all until maturity.
• Chatbots often total the discount case's interest expense as 30,000 + 400 = $30,400, adding one period's amortization instead of all 10.
• Chatbots sometimes say the $3,400 of interest expense is the cash the shop pays each period.
• Chatbots sometimes cite a specific standard or paragraph number that supposedly requires the effective-interest method in every case.
• Chatbots sometimes list Discount on Bonds Payable as an asset, or move the five-year bonds to current liabilities after one period.
• Chatbots often quote an earlier year's Social Security wage base when asked about the mechanic's wages.
• Chatbots often describe depreciation on the shop's new equipment as the fall in what the equipment would sell for.
• Chatbots sometimes say a business reporting under IFRS may choose LIFO for its inventory.

Write three to five sentences naming what the chatbot got right and at least two places where it slipped into one of the failures above, quoting its words and correcting each by hand against Dataset J, Chapter 13, and the pinned source.

Equivalent route (no AI required)

No AI account is required for this workshop. This route assesses the same objectives, Objective 8 (account for long-term liabilities, including bonds issued at face, at a discount, and at a premium, and for stockholders' equity, including stock issuance, dividends, and treasury stock) and Objective 4 (complete the accounting cycle: prepare an income statement, a statement of retained earnings, and a classified balance sheet, journalize closing entries, and prepare a post-closing trial balance), takes comparable effort of about the same 90 minutes, uses the same rubric, and earns the same credit. Instead of the chatbot, critique this flawed analysis of Dataset J, printed here in full: "The shop sells its $100,000 of bonds for $96,000, so it records the issue as debit Cash 96,000, credit Bonds Payable 92,000 and credit Discount on Bonds Payable 4,000. Each period it records Interest Expense 3,400 and credits Cash 3,400, because the expense is the cash it pays. The whole $4,000 discount is interest expense in the first period, so the first period's expense is 7,000. Over the 10 periods the total interest expense is 30,000 + 400 = 30,400. When the shop instead sells for $104,000, the extra $4,000 is revenue the day the cash arrives. On the balance sheet, Discount on Bonds Payable is listed with the assets, and after one period the bonds move to current liabilities. FASB standard 42 requires the effective-interest method for every bond, with no exceptions. The new equipment the expansion bought is losing resale value, which is what its depreciation measures. The mechanic's Social Security is withheld at 6.2 percent on wages up to the wage base the Social Security Administration set two years ago. And under IFRS the shop could use LIFO for its bicycles." Mark every error you find, name the failure it shows, and correct it by hand against Dataset J, Chapter 13, and the pinned source; find at least two. The wage base in it is out of date on purpose and is itself one of the errors, and FASB standard 42 is invented on purpose. Submit the marked-up analysis with your corrections in place of the chatbot report and share link.

Part 7 — What to Submit

• The completed amortization schedule, entry table, and comparison table from Part 4, with every column footed and every entry checked
• Written answers to all five analysis questions
• The chatbot critique report with its share link, or the equivalent route's marked-up flawed analysis

Deliverable:

A short Accounting Workshop report on the bicycle shop's bonds: three completed tables (the discount case's amortization schedule, the five entries, and the comparison of the three issue prices), written answers to five analysis questions, and a critique of a chatbot's version of the same work, or, on the equivalent route, a marked-up correction of the printed flawed analysis. Choose how you show it: a completed spreadsheet with written answers, a recorded explanation with a transcript, or hand-drawn tables with short notes; every form is graded by the same scoring criteria. Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

Rubric

The rubric below shows how each submitted part is evaluated; bands are full, partial, or none.

Workshop evaluation criteria

Criterion	Full	Partial	None
Amortization schedule built and footed	Every row starts from the row above's ending value, the amortization is 400 and the expense 3,400 in each period, the last row ends at 100,000, and the column totals are 30,000, 4,000, and 34,000 by formula or written sum.	Most rows are right, or the totals are footed but one column carries a wrong amount or the schedule ends away from the face.	No schedule, or a schedule that never reaches the face.
Balanced bond entries	All five entries use the right accounts and amounts, each balances with the debits first, Bonds Payable is credited for the full face at issue, and the discount is debited and the premium credited.	Three or four entries are right, or all five are present but one is reversed, unbalanced, or credits Bonds Payable for the cash received.	Fewer than three correct entries.
Plain-sentence reading and the effect of another allowed method	One plain sentence says what the schedule shows, and the answer says in words that the effective-interest method would make the expense change a little each period while the 4,000 total and the face at maturity stay the same.	The plain sentence or the method effect is present, but not both, or one of them is vague.	Neither the plain sentence nor the method effect is present.
Caught-and-corrected AI slip, on either route	The chatbot critique report, or the equivalent route's marked-up flawed analysis, quotes at least two errors and corrects each by hand against Dataset J, Chapter 13, and the pinned source; either route earns this band equally.	One error is quoted and corrected on either route, or errors are named without a correction.	No critique on either route, or chatbot output is pasted without checking it.
Comparison, classification, and reflection	The comparison table is complete for all three prices, the bonds are placed in long-term liabilities at their carrying value, and the chosen reflection option is answered with a specific entry or figure from Dataset J.	Two of those three parts are present, or one is general.	None of the three parts is present.

Quality Gate

• Every row of the schedule starts from the previous row's ending carrying value, and the last row ends at the $100,000 face.
• Every column total is computed by formula or written as a sum, and the expense total equals the cash total plus the amortization total.
• Every entry lists its debits first, credits Bonds Payable for the full face, and has equal debits and credits.
• No standard, rule, rate, statistic, or quotation is invented anywhere in the submission.
• The plain-sentence reading names what the schedule shows and treats neither the discount nor the premium as a gain, a loss, or revenue.
• The critique quotes the chatbot or the flawed analysis and corrects at least two errors by hand.