Question

Myriad Solutions, Inc., issued 10% bonds, dated January 1, with a face amount of $320 million on January 1, 2013 for $283,294,720. The bonds mature on December 31, 2022 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest is paid semiannually on June 30 and December 31.

a. What would be the net amount of the liability Myriad would report in its balance sheet at December 31, 2018? 2.

b. What would be the amount related to the bonds that Myriad would report in its income statement for the year ended December 31, 2018?

c. What would be the amount(s) related to the bonds that Myriad would report in its statement of cash flows for the year ended December 31, 2018?

Answer 1

a. $ 285,349,947

b. $ 34,055,227

c. $ 283,294,720 and $ 32,000,000

Explanation:

We have the following data as of Jan. 1, 2013:

Cash 283,294,720

Discount on Bonds Payable 36,705,280

Bonds Payable 320,000,000

Now for the date of June 30, 2013, we do the following calculations:

320,000,000 x 10% x 2 = $ 16,000,000 cash payment

interest expense:

283,294,720 carrying value x 6% market rate = 16,997,683

to calculate depreciation:

16,997,683 - 16,000,000 = $ 997,683 discount amortization

Now for the new carrying value of bonds, we do the following:

283,294,720 + 997,683 = 284,292,403

As of Dec. 31, 2013, we have to:

320,000,000 x 10% x 2 = $ 16,000,000 cash payment

interest expense:

284,292,403 carrying value x 6% market rate = 17,057,544

to calculate depreciation:

17,057,544 - 16,000,000 = $ 1,057,544 discount amortization

Now for the new carrying value of bonds, we do the following:

284,292,403 + 1,057,544 = 285,349,947

Answering the questions:

a. The bonds would be listed at their current carrying value, $ 285,349,947

b. Interest Expense : 16,997,683 + 17,057,544 = $ 34,055,227

c. The $ 283,294,720 cash received from the sale of bonds would be added to cash flows under financing activities. The $ 32,000,000 in interest payments would be subtracted from cash flows under operating activities.