Exercise 14-5 Bonds; issuance; effective interest; financial statement effects [

Question

Exercise 14-5 Bonds; issuance; effective interest; financial statement effects [LO14-2]

Myriad Solutions, Inc., issued 12% bonds, dated January 1, with a face amount of $470 million on January 1, 2018, for $420,208,482. The bonds mature on December 31, 2027 (10 years). For bonds of similar risk and maturity the market yield is 14%. Interest is paid semiannually on June 30 and December 31.

Required:
Complete the table below to calculate the amounts related to the bonds that Myriad would report in its financial statements.
Indicate the amounts reported on the financial statements below for the year ending December 31, 2018.

Explanation / Answer

Face Value $ 470,000,000.00 Issue Price $ 420,208,482.00 Issue Date 01.01.2018 Annual Bnd Intt Rate 12% Annual Market Yield = 14% No of periods = 10 yrs*2 20 Effective Bond Intt Rate 6% [12/2] Effective Market Yield 7% [14%/2] Cash Intt Paid         28,200,000.00 1 Cash Intt Paid Bond Intt Expense Discount Amortization Carrying Value [Face Vaue*6%] [Opening Carrying Vaue*7%] [Bond Intt Exp - Cash Intt Paid ] [Opening Carrying Vaue-Discount Amortization] 01-01-18 $                                    -   $                            -   $                       -   $        420,208,482 30-06-18 $                  28,200,000 $           29,414,594 $        1,214,594 $        418,993,888 31-12-18 $                  28,200,000 $           29,329,572 $        1,129,572 $        417,864,316 Total $                  56,400,000 $           58,744,166 $        2,344,166 2 BALANCE SHEET NET LIABILITY $                417,864,316 INCOME STATEMENT INTEREST EXPENSE $                  58,744,166 STATEMENT OF CASH FLOW OPERATING $                (56,400,000) INVESTING FINANCING $                420,208,482

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