Question

Myriad Solutions, Inc. issued 12% bonds, dated January 1, with a face amount of $480 million on January 1, 2021, for $429,149,088. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity the market yield is 14%. Interest is paid semiannually on June 30 and December 31.

Required: Calculate the amounts related to the bonds that Myriad would report in its financial statements.

Answer 1

Under effective interest rate method

Period-End	Par value	Cash Interest Paid	Bond Interest Expense	Discount Amortization	Carrying Value
01-01-2021	480,000,000				$429,149,088
06/30/2021	480,000,000	480 m * 12% =57,600,000	429149088*14% = 60,080,872	$2,480,872	$431,629,960
12/31/2021	480,000,000	480 m * 12% =57,600,000	$431,629,960*14% =60,428,194	$2,828,194	$434,458,154
Total		$115,200,000	$120,509,066

.

Balance sheet:
Net liability	$434,458,154	[carrying value]
Income statement:
Interest expense	$120,509,066	[calculated above]
Statement of cash flows:
Operating	($115,200,000)	[interest paid]
Investing	$0
Financing	$429,149,088	[cash proceeds from bond issuance]