Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $
ID: 2478646 • Letter: A
Question
Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $1,680 million on July 1, 2016, at a price of $1,670 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.
Prepare the journal entry to record interest at the effective interest rate at December 31. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answer in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Reecord interest payment at December 31, 2016?
b.
What would be the amount(s) related to the bonds that Agee would report in its statement of cash flows for the year ended December 31, 2016, if it uses the direct method? (List any cash outflows with a minus sign. Enter your answer in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) (there are 3 cash flow activity blanks)
a.Prepare the journal entry to record interest at the effective interest rate at December 31. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answer in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Reecord interest payment at December 31, 2016?
b.
What would be the amount(s) related to the bonds that Agee would report in its statement of cash flows for the year ended December 31, 2016, if it uses the direct method? (List any cash outflows with a minus sign. Enter your answer in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) (there are 3 cash flow activity blanks)
Explanation / Answer
Answer:a.
Interest expense A/C Dr. (1670*10%*1/2) $83.5 million
To Discount on bonds payable A/C $7.9 million
To Cash A/C (1680*9%*1/2) $75.6 million
Answer:b Agee would report the cash inflow of $1670 million from the sale of the bonds as a cash inflow from financing activities in its statement of cash flows.
The $75.6 million cash interest paid is cash outflow from operating activities because interest is an income statement (operating) item.