$800,000,000 4.75% Notes due 2024 For this problem, assume the bonds were origin

Question

$800,000,000

4.75%

Notes due 2024 For this problem, assume the bonds were originally dated 7/1/17 and are due 7/1/2024. Interest payment dates are 1/1 and 7/1. ROUND ALL ANSWERS TO THE NEAREST DOLLAR! Assume that $650,000 of these bonds are sold for 93.375 on 7/1/17, to yield 5.5%.

e) How much interest expense does the company report for 2017? For 2018?

(f) How much cash interest do the bondholders receive in 2017? In 2018?

(g) Prepare the entry required on 1/1/18:

(h) Prepare the entry to record the next semi-annual interest payment (and amortization), on 7/1/18:

(i) What is the effect on the financial statements of making the entry on 7/1/18?

(j) Name two liabilities (account names and amounts) that will appear on the balance sheet related to these bonds on 12/31/18:

Explanation / Answer

(E) Interest expense reported by company for 2017 is $20,951

Interest expense reported by company for 2018 is $41,902

F)

Cash Interest received by bond holders for 2017 is $17,875

Cash Interest received by bond holders for 2018 is $35,750

G) Entry for 1/1/18 is

H) Entry to record the next semi-annual interest payment (and amortization), on 7/1/18 is:

Year Particulars L.F Debit Credit Jan-18 Bond Interest Expense 20,951    Discount on bonds payable (43,062.5/14) 3,076 Cash (650,000*5.5%*6/12) 17,875 (For Interest on 5.5% bonds paid for 6 months )

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