Question

On January 1, 2021, Pujols Industries issued 10% bonds, dated January 1, with a face amount of $48 million. The bonds were priced at $42 million (plus accrued interest) to yield 12%. Interest is paid semiannually on June 30 and December 31. Pujols' fiscal year ends October 31. Required: 1. What would be the amount(s) related to the bonds Pujols would report in its balance sheet at October 31, 2021? 2. What would be the amount(s) related to the bonds that Pujols would report in its income statement for the year ended October 31, 2021? 3 What would be the amount(s) related to the bonds that Pujols would report in its statement of cash flows for the year ended October 31, 2021?

Answer 1

Answer:1. Amount of $48 000 000,  2. Amount of $2 400 000, 3. Amounts of $48 000 000 and $2 400 000

Explanation:

1. Amounts Reported in the Balance sheet (31 October 2021)

 Bonds are reported at their Face Value in the Balance Sheet. The amount of $48 000 000 would be reported under Long term Liabilities in the Balance sheet

2. Amounts Reported in the income statement (31 October 2021)

Pujols Fiscal year ends on October 31, Bonds were issued on 1 January 2021. Interest on Bonds issued is paid semi annually on June 30 and December 31. When fiscal year ends on October 31 Pujols industries would have paid interest on Bonds for the first six months (30 June 2021)

Bonds Face Value = $48 million

Bonds Price = $42 million

Coupon rate = 10%

Interest expense/Coupon Payment = 48000 000 x 10/100 x 6/12

Interest expense/Coupon Payment = 2400000

The interest expense of $2 400 000 would be reported in the income statement for the year ended 31 October 2021

3. Amounts reported in the Statement of Cash Flows for the year ended 31 October 2021

Interest Payment of $2 400 000 would be reported under cash flows from operative activities

amount of $42 000 000 would be reported under Cash Flows from Financing Activities