Question
In: Accounting
P 14 - 2 On January 1, 2018, Baddour Inc., issued 10% bonds with a face...
P 14 - 2
On January 1, 2018, 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.
Question #1.) What amount(s) related to the bonds would Baddour report in its balance sheet at September 30, 2018?
On 9/30/18 Interest expense - Interest payable is $4,212,000 - $4,000,000 = $212,000,000. I'm curious then, when subtracting the interest payable from the interest expense what it would be on 6/30/18? This is the 9th edition of Intermediate Accounting by authors Spiceland, Nelson, and Thomas. Published by Mcgraw Hill.
Solutions
Expert Solution
| 1] | Discount on bonds payable [on the date of issue] = 160000000-140000000 = | $ 2,00,00,000 |
| 2] | Interest expense to be accounted on June 30, 2018 = 140000000*6% = | $ 84,00,000 |
| Interest payable = 160000000*5% = | $ 80,00,000 | |
| Amortization of discount = 9600000-8000000 = | $ 4,00,000 | |
| Balance in discount account | $ 1,96,00,000 | |
| Carrying value of bonds as on June 30, 2018 = 160000000-19600000 = | $ 14,04,00,000 | |
| 3] | Interest expense for the second half upto 30th September, 2018 = 140400000*6%*3/6 = | $ 42,12,000 |
| Interest payable = 160000000*5%*3/6 = | $ 40,00,000 | |
| Amortization of discount = 4212000-4000000 = | $ 2,12,000 | |
| 4] | Amounts to be shown in the Balance Sheet as of 30.09.2018: | |
| Bonds payable | $ 16,00,00,000 | |
| Less: Discount on bonds payable = 19600000-212000 = | $ 1,93,88,000 | |
| a] | Bonds payable [carrying value] | $ 14,06,12,000 |
| b] | Interest payable | $ 40,00,000 |
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