Question

Myriad Solutions, Inc. issued 12% bonds, dated January 1, with a face amount of $350 million on January 1, 2021, for $312,921,210. 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. 1. What would be the net amount of the liability Myriad would report in its balance sheet at December 31, 2021

Answer 1

Answer:

Myriad Solutions, Inc.

The net amount of the liability that Myriad would report in its balance sheet at December 31, 2021 is:

= $314,793,494

Explanation:

a) Data and Calculations:

Face value of bonds = $350 million

Discounted value (Cash receipt) = $312,921,210

Total amount of discount = $37,078,790

Bond's interest rate = 12%

Market yield = 14%

June 30, 2021:

Cash payment for interest = $21 million ($350 m * 6%)

Bonds' Interest expense = $21,904,485 ($312,921,210 * 7%)

Amortization of bond discount = $904,485 ($21,904,485 - $21 million)

Bond book value = $313,825,695 ($312,921,210 + $904,485)

Dec. 31, 2021:

Cash payment for interest = $21 million ($350 m * 6%)

Bonds' Interest expense = $21,967,799 ($313,825,695 * 7%)

Amortization of bond discount = $967,799 ( $21,967,799 - $21 million)

Bond book value = $314,793,494 ($313,825,695 + $967,799)