In: Accounting
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.
Required:
1. What amount(s) related to the bonds would Baddour
report in its balance sheet at September 30, 2018?
2. What amount(s) related to the bonds would
Baddour report in its income statement for the year ended September
30, 2018?
3. What amount(s) related to the bonds would
Baddour report in its statement of cash flows for the year ended
September 30, 2018? In which section(s) should the amount(s)
appear?
(For all requirements, Enter your answers in whole
dollars.)
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.
Required:
1. What amount(s) related to the bonds would Baddour
report in its balance sheet at September 30, 2018?
2. What amount(s) related to the bonds would
Baddour report in its income statement for the year ended September
30, 2018?
3. What amount(s) related to the bonds would
Baddour report in its statement of cash flows for the year ended
September 30, 2018? In which section(s) should the amount(s)
appear?
(For all requirements, Enter your answers in whole
dollars.)
Coupon rate per semi annually = 10% / 2 = 5% | |||||||
Market rate per semi annually = 12% / 2 = 6% | |||||||
Amortization of bond Discount (Credit Bond Discount) = Interest Expense - Interest payment | |||||||
Interest payment (Credit Cash) = Face value of bond * 5% = 160000000 * 5% | |||||||
Interest Expense (Debit Interest Expense) = book value of Bond for previous period * 6% | |||||||
Amortization of bond Discount (Credit Bond Discount) = Interest Expense - Interest payment | |||||||
Debit Balance in Bond Discount = Debit Balance in Bond Discount for previous period - Amortization of bond Discount | |||||||
Credit Balance in Bond Payable = Face value of bond | |||||||
Book value of Bond = Credit Balance in Bond Payable - Debit Balance in Bond Discount | |||||||
Bond Discount Amortization Table | |||||||
Period | Date | Interest payment | Interest Expense | Amortization of bond Discount | Debit Balance in Bond Discount | Credit Balance in Bond Payable | Book value of Bond |
0 | Jan 1, 2018 | $ 20,000,000 | $ 160,000,000 | $ 140,000,000 | |||
1 | June 30, 2018 | $ 8,000,000 | $ 8,400,000 | $ 400,000 | $ 19,600,000 | $ 160,000,000 | $ 140,400,000 |
2 | Dec 30, 2018 | $ 8,000,000 | $ 8,424,000 | $ 424,000 | $ 19,176,000 | $ 160,000,000 | $ 140,824,000 |
Journal entries | |||
Date | General Journal | Debit | Credit |
Jan 1, 2018 | Cash | $ 140,000,000 | |
Discount on Bond payable (Balancing Figure) | $ 20,000,000 | ||
Bond payable | $ 160,000,000 | ||
(To record issued of bond payable at Discount.) | |||
June 30, 2018 | Interest expense | $ 8,400,000 | |
Discount on Bond payable | $ 400,000 | ||
Cash | $ 8,000,000 | ||
(To record interest expense and amortization of bond Discount.) | |||
Sep 30, 2018 | Interest expense (8424000*3/6) | $ 4,212,000 | |
Discount on Bond payable (424000*3/6) | $ 212,000 | ||
Interest Payable (8000000*3/6) | $ 4,000,000 | ||
(To record adjustment for interest expense and amortization of bond Discount.) (June to September = 3 months) |
What amount(s) related to the bonds would Baddour report in its balance sheet at September 30, 2018? | ||
Face value of Bond | $ 160,000,000 | |
Less: Discount on Bond payable (20000000-(400000+212000)) | $ 19,388,000 | |
Net bond Payable reported in balance sheet | $ 140,612,000 | |
Interest Payable reported in balance sheet | $ 4,000,000 | |
What amount(s) related to the bonds would Baddour report in its income statement for the year ended September 30, 2018? | ||
Interest expense (8400000+4212000) | $ 12,612,000 | |
What amount(s) related to the bonds would Baddour report in its statement of cash flows for the year ended September 30, 2018? In which section(s) should the amount(s) appear? | ||
Sale of bonds (Inflow from financing activities) | $ 140,000,000 | |
Cash Interest paid (Outflow from operating activities) | $ 8,000,000 |