Advanced Physical Fitness purchased the $100,000,000 bond on 1/1/2016 for $113,8

Question

Advanced Physical Fitness purchased the $100,000,000 bond on 1/1/2016 for $113,833,277. Terms of the bond are: 10 year, 3% stated rate, interest paid on 12/31 each year. The management intends to hold the bond to maturity. Market rate on 1/1/2016 is 1.5%.

What is the impact of bond redemption on 1/1/2026 on the financial statements (Income Statement, Balance Sheet, Cash Flows Statement (direct method))? Identify the section title, account title, and the sign of the numeric amount (positive/negative).

The Amortization schedule and journal entries are below.

Amortization Schedule Date Cash Paid 1/1/2016 12/31/2016 S3,000,000 $ 12/31/2017 $3,000,000 $ 12/31/2018 S 3,000,000 $ 12/31/2019 $3,000,000 $ 12/31/2020 S3,000,000 $ 12/31/2021 $3,000,000 $ 12/31/2022 $3,000,000 $ 12/31/2023 S3,000,000 $ 12/31/2024 S3,000,000 $ 12/31/2025 s3000000 S Interest Expense Amortization Carrying Amount $113,833,277 1,707,499$ 1,292,501 $ 112,540,776 1,688,112$ 1,311,888 $111,228,888 1,668,433$ 1,331,567 $ 109,897,321 1,648,460$ 1,351,540 $ 108,545,781 1,628,187$ 1,371,813 $ 107,173,967 1,607,610$ 1,392,390 $ 105,781,577 1,586,724$ 1,413,276 $ 104,368,301 1,565,525$1,434,475 $ 102,933,825 1,544,007$ 1,455,993 $ 101,477,833 1,522,167 S 1477,833 S 100,000,000 3,000,000$ FigureI: Amortization Schedule of the Bond Using Effective Interest Method ournal Entries 1/1/2016 Cash S 113,833,277 $ 13,833,277 S 100,000,000 Premium Bonds Payable 12/31/2018 Interest Expense $ 1,668,433 1,331,567 Premium Cash $3,000,000 1/1/2026 Bonds Payable 100,000,000 Cash S 100,000,000 Figure 2: Journal Entries for Bond Issuance, Interest Payment, and Bond Redemption

Explanation / Answer

When the bonds will be redeemed in year 2026.

Imapact on Income statement will be:

Interest expense will be debited by $ 1,522,167 .

Impact on Balance sheet will be

Current assets will decrease by $103,000,000

Bonds Payable will reduce by $100,000,000

Share Premium will also reduce by $ $1,477,833

Impact on Cash flow statement will be:

Cash paid to suupliers will increase by $103,000,000

Payment to bondholders will be shown by 100,000,000

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