Question

On March 1, 2021, Baddour, Inc., issued 12% bonds, dated January 1, with a face amount of $175 million. The bonds were priced at $153.6 million (plus accrued interest) to yield 14%. Interest is paid semiannually on June 30 and December 31. Baddour’s fiscal year ends September 30.

Required: 1. to 3. What would be the amount(s) related to the bonds Baddour would report in its balance sheet, income statement and statement of cash flows for the year ended September 30, 2021?

Answer 1

1) Balance Sheet :

Liabilities at September 30,2021
Bonds Payable (Face amount)	175,000,000
Less: Discount	(21,400,000)
Initial Balance Januray 1,2021	153,600,000
June 30,2021 Discount amortization	252,200
September 30,2021 Discount amortization	134,820
September 30,2021 Net Bonds Payable	153,986,820

Workings :

i) June 30 ,2021 discount amortization:

Interest Expense = [ 14% * 153,600,000 * (6/12)] = 10,752,000

Less;Interest paid = [12% * 175,000,000 * (6/12)] = (10,500,000)

Discount Amortization = 252,000

ii ) September 30,2021 Discount amortization ;

Interest Expense = [14% * (153,600,000+252,000) * (3/12)] = 5,384,820

Less:Interest Payable = [12% * 175,000,000 * (3/12)] = (5,250,000)

Discount amortization = 134,820

Balance Sheet as on September 30,2021:

Net bonds payable $153,986,820

Interest Payable $5,250,000 [12% * 175,000,000 * (3/12)]

2) Income Statement :

Interest Expense for fiscal year 2021 ;

June 30,2021 Interest Expense = [14% * 153,600,000 * (6/12)]   = 10,752,000

September 30 ,2021 Interest Expense = [14% * (153,600,000 + 252,000) * (3/12)] = 5,384,820

TOTAL : Interest Expense for fiscal year 2021    = $16,136,820

3) Statement of Cash Flow:

Baddour would report the cash inflow of $153,600,000 from the Sale of bonds as a cash flow from financing activity.

Sale of Bonds $153,600,000

Cash interest paid [12% * 175,000,000 *(6/12)] of 10,500,000 is a cash outflow from operating activity

Cash interest paid $10,500,000