Question

Exercise 14-5 (Algo) Bonds; issuance; effective interest; financial statement effects [LO14-2] Myriad Solutions, Inc. issued 12% bonds, dated January 1, with a face amount of $390 million on January 1, 2021, for $348,683,634. The bonds mature on December 31, 2030 (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: Calculate the amounts related to the bonds that Myriad would report in its financial statements. (Round your answers to the nearest whole dollar.)

Answer 1

1a.Carrying value $354,266,807

Interest expense $52,383,173

Cash Interest $46,800,000

1b.Balance Sheet:

Net Liability $354,266,807

Income Statement:

Interest expense $52,383,173

Statement of cash flows:

Operating -$46,800,000

Investing 0

Financing $348,683,634

Step-by-step explanation:

1a.Calculation of the amounts related to the bonds that Myriad would report in its financial statements

Bond Amortization Schedule

Date Cash interest Interest Expense Discount amortization Carrying value

01-Jan-21 $348,683,634

30-Jun-21

$23,400,000 $24,407,854 $1,007,854 $349,691,488

31-Dec-21 $23,400,000 $27,975,319 $4,575,319 $354,266,807

Total amount of Cash Interest

$46,800,000

Total amount of Interest expense $52,383,173

1b. Indication of the amounts to be reported on the financial statements for the year ending December 31, 2021

Myriad Financial statements

Balance Sheet:

Net Liability $354,266,807

Income Statement:

Interest expense $52,383,173

Statement of cash flows:

Operating -$46,800,000

Investing 0

Financing $348,683,634

($354,266,807+$46,800,000)

=$401,066,807

$401,066,807-$52,383,173

=$348,683,634