Please answer every part of the question and EXPLAIN your reasoning. Show your w
ID: 2430279 • Letter: P
Question
Please answer every part of the question and EXPLAIN your reasoning. Show your work! Part VI. Bonds (12 points in total) On January 1, 20X0, Hoffman Corporation issued 5 year, 10% semi-annual coupon bonds with a maturity value of $100,000 for $108,11 1 . On this date, the market rate of interest was 80% per year compounded semi-annually. Periodic interest payments are made on June 30th and December 3 1t each year. Please answer the following questions related to these bonds: A. (3 points) How much interest expense would be reported on Hoffman Corp.'s Income Statement for the year 20X0? B. (2 points) How much cash was paid to bondholders during the year 20x0? C. (2 points) Indicate how the dollar amount reported for Bonds Payable on the balance sheet will change in the first year. That is, indicate how the amount reported for Bonds Payable on December 31, 20X0 will differ from. the amount reported for Bonds Payable on January 1, 20X0 (right after the bonds were issued) by stating whether it will be higher or lower on 12/31/X0 and by how much. D. (3 points) When the bonds mature on December 31, 20X4, how will this transaction be reported on Hoffiman Corp.'s Statement of Cash Flows (ignoring the interest component)? Cash Inflow or Outflow: Dollar Amount: Section of the Cash Flow Statement: (check one) (check one) Operating Investing Cash Inflow Cash Outflow Financing E. (2 points) In general, how will "amortization of bond discount be reported on the Statement of Cash Flows under the indirect method? (Circle one) a. as a cash inflow in the investing section b. as a cash inflow in the financing section c. as a cash outflow in the financing section d. as an addition to net income in the operating section e. as a subtraction from net income in the operating sectionExplanation / Answer
Bond Premium Amortization Schedule Date Cash Interest Paid - $100,000 X 10% X 6/12 Period Interest Expense - Preceeding Bond Carrying Value X 8% X 6/12 Premium Amortization Unamortized Premium Bonds Carrying Amount A B C = A-B D = D - C E = $100,000 + D 1/1/20X0 - - - 8,111 108,111 30/6/20X0 5,000 4,324 676 7,435 107,435 31/12/20X0 5,000 4,297 703 6,733 106,733 Answer A. Interest Expense = $4,324 + $4,297 Interest Expense = $8,621 Answer B. Cash paid to Bondholders = $5,000 + $5,000 Cash paid to Bondholders = $10,000 Answer C. Bond Value as on Jan 1, 20X0 108,111 Bond Value as on Dec 31, 20X0 106,733 Value Lower by 1,378 Answer D. Financing Activities Cash Outflow Dollar Amount 100,000.00 Answer E-d. as an addition to net income in the operating section. Bond amortization is a non cash transactions and it will be added back in Net Income in opearating Section. Bond amortization is just like Interest expense and it is a operating activities.