On January 1, 2018, Baddour, Inc., issued 10% bonds with a face amount of $174 m
ID: 2553264 • Letter: O
Question
On January 1, 2018, Baddour, Inc., issued 10% bonds with a face amount of $174 million. The bonds were priced at $152.6 million to yield 12%. Interest is paid semiannually on June 30 and December 31. Baddour's fiscal year ends September 30 Required: 1. What amount(s) related to the bonds would Baddour report in its balance sheet at September 30, 2018? 2. What amount(s) related to the bonds would Baddour report in its income statement for the year ended September 30, 2018? 3. What amount(s) related to the bonds would Baddour report in its statement of cash flows for the year ended September 30, 2018? In which section(s) should the amount(s) appear? (For all requirements, Enter your answers in whole dollars.) 1. Net bonds payable Interest payable 2. Interest expense for fiscal 2018 3. Sale of bonds Cash interest paidExplanation / Answer
Answer 1.
Face Value = $174,000,000
Proceed from Issue = $152,600,000
Annual Coupon Rate = 10%
Semiannual Coupon Rate = 5%
Semiannual Coupon = 5%*$174,000,000
Semiannual Coupon = $8,700,000
Annual Yield = 12%
Semiannual Yield = 6%
June 30, 2018:
Interest Expense = 6% * $152,600,000
Interest Expense = $9,156,000
Discount amortized = $9,156,000 - $8,700,000
Discount amortized = $456,000
Carrying Value = $152,600,000 + $456,000
Carrying Value = $153,056,000
September 30, 2018:
Interest Payable = $8,700,000 / 2
Interest Payable = $4,350,000
Interest Expense = 6% * $153,056,000 * 3/6
Interest Expense = $4,591,680
Discount amortized = $4,591,680 - $4,350,000
Discount amortized = $241,680
Carrying Value = $153,056,000 + $241,680
Carrying Value = $153,297,680
Balance Sheet:
Net Bonds Payable = $153,297,680
Interest Payable = $4,350,000
Answer 2.
Interest Expense = $9,156,000 + $4,591,680
Interest Expense = $13,747,680
Answer 3.
Cash Flow from Financing Activities:
Sale of Bonds = Proceed from Issue
Sale of Bonds = $152,600,000
Cash Flow from Operating Activities:
Cash Interest Paid = $8,700,000