Cleansea Ltd. needed to raise $150 million of additional capital to finance the design, development, and...

Cleansea Ltd. needed to raise $150 million of additional capital to finance the design, development, and construction of its water desalination facility. Volta decided to issue bonds that pay interest of $2,250,000 on each of March 31 and September 30 and that will reach maturity on September 30, 2033. The bonds were issued at 94.4 on October 1, 2020, for $141.6 million, which represented a yield of 3.54%.

a. Has the company raised enough funds to start the development and construction of the water desalination facility? Explain why or why not.

b. Show the journal entry to record the issuance of the bonds.

c. Show the journal entries to record the first two interest payments. Ignore year-end accruals of -interest.

d. Assuming the company has a year end of December 31, what amount will be reported on the statement of financial position at December 31, 2020, related to these bonds?

Solutions

Expert Solution


Req a
The company need $ 150 million and receievvd the cash by thhe issue of bonds to the tune of $ 141.60 millions.
So, the funds fall short of $ 8.40 millions

req b:
Journal entry for issuance:
Cash account Ddr.			141.6
Discount on bonds payable Dr.			8.4
Bonds payable				150

Req c:
Amort chart
Date	Cash Int	Int expense	Discount	Unamortized	Carrying
			amortized	discount	value
01.10.20				8400000	141600000
31.03.21	2250000	2506320	256320	8143680	141856320
30.09.21	2250000	2510857	260857	7882823	142117177

Journal entry:
31.03.21	Interest expenses Dr.			2506320
	Cash account				2250000
	Discount on bonds payable				256320

30.09.21	Interest expenses Dr.			2510857
	Cash account				2250000
	Discount on bonds payable				260857

Req d:
Current liabilities:
Interest payable (2250000/2)				1125000
Long term liabilities:
Bonds payable			150000000
Less: Unamortized discount			8271840
(8400000-256320/2)
Bonds payable-Net				141728160

ekkarill92 answered 1 year ago

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