Question

Myriad Solutions, Inc. issued 12% bonds, dated January 1, with a face amount of $420 million on January 1, 2021, for $375,505,452. 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:
Complete the table below to calculate the amounts related to the bonds that Myriad would report in its financial. Indicate the amounts repotted on the financial statements below the year ending December 31.2021.

Answer 1

Calculation

Period   Cash Interest   Bond Interest    Discount     Carrying  

 End          paid            Expense         Amortization     Value

 01-Jan-21                                                            $375,505,452            

30-Jun-21 $25,200,000 $26,285,38 $1,085,382 $376,590,834

1-Dec-21 $25,200,000   $26,361,358  $1,161,358  $377,752,192

Total    $50,400,000     $52,646,740

Answer 2

Answer:

In the cash flow statement

under financing operation:

proceeds from bonds      375,505,452

payment to bondholder

420,000,000 x 6% x 2 = (50,400,000)

in the income statement:

interest expense for each payment:

26.285.381,64‬

26.361.358,35

total   52.646.739,99‬

Balance sheet

Bonds payable     420,000,000

Discount on BP    (42.247.808,01‬)

Carrying Value        377,752,191.99

Explanation:

The cash flow will consider the proceeds and the coupon payment made during the year.

Income estamtent: will be the interest expense:

carrying value x market rate

375,505,452 x 0.14  x 1/2 = 26.285.381,64‬

cash proceed

420,000,000 x 0.12 x 1/2  =     25,200,000    

amortization                                1,085,381.64‬  

second interest payment

carrying value

375,505,452 + 1,085,381.64 = 376.590.833,64‬

interest expense

37590833.64 x 0.07 =         26.361.358,35

cash proceed

420,000,000 x 0.12 x 1/2  =     25,200,000    

amortization                              1.161.358,35

carrying value at the end of the year:

376,590,833.64 + 1,161,358.35 = 377.752.191,99

the difference withthe face value is the discount at year-end