Problem 14-10 Presented below are four independent situations. a) On March 1, 20

ID: 2515017 • Letter: P

Question

Problem 14-10 Presented below are four independent situations. a) On March 1, 2018, Grouper Co issued at 103 plus accrued interest $4,080 000 996 bonds. The bonds are dated anuary 2018, and a te est sem annually on u?nd January 1. In addition, Grouper Co. incurred $26,000 of bond issuance costs. Compute the net amount of cash received by Grouper Co. as a result of the issuance of these bonds. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to O decimal places, e.g. 5,275 Net amount of cash received b) On January 1 2017, Monty Co issued 9% bonds with a ace value of $755,000 or $665, 69 to yield 11%. The bonds are dated January 2017, and a nterest annually What amount is reported for interest expense in 2017 related to these bonds, assuming that Monty used the effective-interest method for amortizing bond premium and discount? (Round answer to o decimal places, e.g. 38,548. Interest expense to be reported for 2017 (c) Flounder Building Co. has a number of long-term bonds outstanding at December 31, 2017. These long-term bonds have the following sinking fund requirements and maturities for the next 6 years.

Explanation / Answer

Solution:

Part a – Net Amount of Cash Received

Issue Price of the bonds excluding accrued interest

(Face Value $4,080,000 * 103% )

$4,202,400

Less: Bond Issuance Cost

($26,000)

Net amount of cash received

$4,176,400

Part b – Interest Expenses to be reported for 2017

Interest Expenses for 2017 under effective interest method = Carrying Value of the bonds payable at the beginning of 2017 x Semi Annual Effective Interest Rate i.e. Yield

= $666,069 x 11% x ½

= $36,634

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