Question

On January 1, 2021, Baddour, Inc., issued 10% bonds with a face amount of $168 million. The bonds were priced at $147.2 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, 2021? 2. What amount(s) related to the bonds would Baddour report in its income statement for the year ended September 30, 2021? 3. What amount(s) related to the bonds would Baddour report in its statement of cash flows for the year ended September 30, 2021? In which section(s) should the amount(s) appear? (For all requirements, enter your answers in whole dollars.)

Net Bonds Payable:

Interest Payable

Interest Expense for fiscal year 2021

Sale of Bonds:

Cash interest paid

Answer 1

Calculation

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% = 168000000 * 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, 2021				$        20,800,000	$        168,000,000	$    147,200,000
1	June 30, 2021	$        8,400,000	$          8,832,000	$             432,000	$        20,368,000	$        168,000,000	$    147,632,000
2	Dec 30, 2021	$        8,400,000	$          8,857,920	$             457,920	$        19,910,080	$        168,000,000	$    148,089,920

Journal Entries

Journal entries
Date	General Journal	Debit	Credit
Jan 1, 2021	Cash	$        147,200,000
	Discount on Bond payable (Balancing Figure)	$          20,800,000
	Bond payable		$        168,000,000
	(To record issued of bond payable at Discount.)
June 30, 2021	Interest expense	$             8,832,000
	Discount on Bond payable		$                432,000
	Cash		$             8,400,000
	(To record interest expense and amortization of bond discount.)
Sep 30, 2021	Interest expense (8857920*3/6)	$             4,428,960
	Discount on Bond payable (457920*3/6)		$                228,960
	Interest Payable (8400000*3/6)		$             4,200,000
	(To record adjustment for interest expense and amortization of bond discount.) (June to September = 3 months)

Your Answer

What amount(s) related to the bonds would Baddour report in its balance sheet at September 30, 2021?
Face value of Bond		$      168,000,000
Less: Discount on Bond payable (20800000-(432000+228960))		$        20,139,040
Net bond Payable reported in balance sheet		$      147,860,960
Interest Payable reported in balance sheet		$          4,200,000
What amount(s) related to the bonds would Baddour report in its income statement for the year ended September 30, 2021?
Interest expense (8832000+4428960)		$        13,260,960
What amount(s) related to the bonds would Baddour report in its statement of cash flows for the year ended September 30, 2021? In which section(s) should the amount(s) appear?
Sale of bonds (Inflow from financing activities)		$      147,200,000
Cash Interest paid (Outflow from operating activities)		$          8,400,000