Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $
ID: 2520035 • Letter: A
Question
Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $900 million on July 1, 2016, at a price of $890 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. 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).)
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?
Cash inflow from financing activities
Cash inflow from investing activities
Cash inflow from operating activities
Cash outflow from financing activities
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?
Explanation / Answer
(a) Interest a/c dr 44.50 (890*.05)
to Cash 40.50 (900*.045)
to Disc on Bond 4.50
(b) Cash inflow from operating activities
Interest Paid 40.50 million
Cash inflow from investing activities
Nil
Cash outflow from financing activities
Procceds from issuance of Bond 890 million