Unit 6 Problems

# Unit 6 Problems - 14-2 On January 1 2011 Baddour Inc issued...

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14-2 On January 1, 2011, Baddour, Inc., issued 10% bonds with a face amount of \$160 million. The bonds were priced at \$140 million to yield 12%. Interest is paid semiannually on June 30 and December 31. Baddour's fiscal year ends September 30. Required: 1 What amount(s) related to the bonds would Baddour report in its balance sheet at September 30, 2011? 2 What amount(s) related to the bonds would Baddour report in its income statement for the year ended September 30, 2011? 3 What amount(s) related to the bonds would Baddour report in its statement of cash flows for the year ended September 30, 2011? In which section(s) should the amount(s) appear? Answer

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Face Value of Bonds issued =\$160,000,000 140612000 Price of the Bond =\$140,000,000 Discount on issue of Bonds =\$ 20,000,000 Interest is paid half yearly @10% =\$ 160,000,000*10 /100*6/12 =\$8,000,000 Date Intere st Paym ent Interest Expense Amortization of Bond Discount @6% of B.V (3-2) Jan. 1 st 2011 June 8000 000 8400000(14000 0000*6%) 30 th 2011 Sep. 30 th 2011 4000 000 for 3 mont hs (140400000*12 %*3/12)= 4212000 1) What amount(s) related to the bonds would Bad dour report in its balance sheet at September 30, 2011? Liabilities A Assets Amount \$
moun t \$ Bonds 1600 0000 0 Bond Discount Accrued Interest Payable 4000 000 2) What amount(s) related to the bonds would Bad dour report in its income statement for the year ended September 30, 2011? Particulars Amou nt \$ Accrued Interest payable 4000 000 Amortization of Discount 2120 00 3) What amount(s) related to the bonds would Baddour report in its statement of cash flows for the year ended September 30, 2011? In which section(s) should the amount(s)

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appear? Interest payable and Amortization of Discount will be shown under the heading Cash from Operating Activities in the cash flow statement. Bonds Issued will be shown under the heading of Cash from financing activities in the cash flow statement. 14-3 On January 1, 2011, Bradley Recreational Products issued \$100,000, 9%, four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at \$96,768 to yield an annual return of 10%. Required: 1 Prepare an amortization schedule that determines interest at the effective interest rate. 2 Prepare an amortization schedule by the straight-line method. 3 Prepare the journal entries to record interest expense on
June 30, 2013, by each of the two approaches. 4 Explain why the pattern of interest differs between the two methods. 5 Assuming the market rate is still 10%, what price would a second investor pay the first investor on June 30, 2013, for \$10,000 of the bonds? Answer

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Unit 6 Problems - 14-2 On January 1 2011 Baddour Inc issued...

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