Question
In: Finance
On January 1, 2021, Charles, Inc., issued 12% bonds with a face amount of $17 million....
On January 1, 2021, Charles, Inc., issued 12% bonds with a face
amount of $17 million. The bonds were priced at $14 million to
yield 14%. Interest is paid semiannually on June 30 and December
31. Charles’s fiscal year ends September 30.
Required:
1. What amount(s) related to the bonds would Charles report in its
balance sheet at September 30, 2021?
2. What amount(s) related to the bonds would Charles report in its
income statement for the year ended September 30, 2021?
3. What amount(s) related to the bonds would Charles report in its
statement of cash flows for the year ended September 30, 2021? In
which section(s) should the amount(s) appear?
Solutions
Expert Solution
| Note:Discount on Bond payable is amortized using effective interest rate method | |||||
| Period | Cash interest paid = par value * semiannual coupon rate | Interest expense = carrying value*semiannual Yield rate | discount amortized = cash interest paid-Interest expense | carrying value of discount on bonds payable | carrying value of bond = carrying value of bond+discount amortized |
| Jan 1 2021 | 3000000 | 14000000 | |||
| June 30 2021 | 1020000 | 980000 | 40000 | 2960000 | 14040000 |
| Sep 30 2021 | 510000 | 491400 | 18600 | 2941400 | 14058600 |
| Par value of bond | 17000000 | ||||
| less discount on bond payable | 2941400 | ||||
| carrying value of bond payable net of discount on bond payable | 14058600 | ||||
| Amount of interest expense to be reported on income statement | 980000+491400 | 1471400 | |||
| amount of Interest paid as cash outflow | 1020000 | 1020000 | |||
| It would be recorded in the cash flow from operating activities |
jeff jeffy answered 1 year agoRelated Solutions
On January 1, 2021, Charles, Inc., issued 12% bonds with a face amount of $17 million....
On January 1, 2021, Charles, Inc., issued 12% bonds with a face
amount of $17 million. The bonds were priced at $14 million to
yield 14%. Interest is paid semiannually on June 30 and December
31. Charles’s fiscal year ends September 30.
Required:
1. What amount(s) related to the bonds would Charles report in its
balance sheet at September 30, 2021?
2. What amount(s) related to the bonds would Charles report in its
income statement for the year ended September...
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On January 1, 2021, Instaform, Inc., issued 12% bonds with a
face amount of $45 million, dated January 1. The bonds mature in
2040 (20 years). The market yield for bonds of similar risk and
maturity is 14%. Interest is paid semiannually. (FV of $1, PV of
$1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use
appropriate factor(s) from the tables provided.)
Required:
1-a. Determine the price of the bonds at January 1,
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face amount of $49 million, dated January 1. The bonds mature in
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maturity is 12%. Interest is paid semiannually. (FV of $1, PV of
$1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use
appropriate factor(s) from the tables provided.)
Required: 1-a. Determine the price of the bonds at January 1,
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Instructions
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