Presented below are four independent situations. (a) On March 1, 2018, Ayayai Co

Question

Presented below are four independent situations.

(a) On March 1, 2018, Ayayai Co. issued at 104 plus accrued interest $4,050,000, 9% bonds. The bonds are dated January 1, 2018, and pay interest semiannually on July 1 and January 1. In addition, Ayayai Co. incurred $25,000 of bond issuance costs.

Compute the net amount of cash received by Ayayai 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 0 decimal places, e.g. 5,275.)

(b) On January 1, 2017, Pina Co. issued 9% bonds with a face value of $643,000 for $603,488 to yield 10%. The bonds are dated January 1, 2017, and pay interest annually.

What amount is reported for interest expense in 2017 related to these bonds, assuming that Pina used the effective-interest method for amortizing bond premium and discount? (Round answer to 0 decimal places, e.g. 38,548.)

(c) Grouper 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.

Sinking Fund

Maturities

Indicate how above information should be reported in the financial statements at December 31, 2017. (Round answers to 0 decimal places, e.g. 38,548.)

Maturities and sinking fund requirements

(d) In the long-term debt structure of Monty Inc., the following three bonds were reported: mortgage bonds payable $9,916,000; collateral trust bonds $5,019,000; bonds maturing in installments, secured by plant equipment $4,029,000.

Determine the total amount, if any, of debenture bonds outstanding.

Net amount of cash received $

Explanation / Answer

SOLUTION

(A)

(B)

(C)

(D) Since the three bonds reported are secured by either real estate, securities of other corporations, or plant and equipment , none of the bonds are classified as debenture bonds.

Amount ($) Selling price of the bonds ($4,050,000 * 104%) 4,212,000 Accrued interest from January1 to February 28, 2018 ($4,050,000 * 9% * 2/12) 60,750 Total cash received from issuance of the bonds 4,272,750 Less: Bond issuance costs (25,000) Net amount of cash received 4,247,750

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