Question

Presented below are four independent situations. (a) on March 1, 2018, Swifty Co, issued at 102 plus accrued interest $4,140,000, 8% bonds. The bonds are dated January 1, 2018, and pay interest semiannually on July 1 and January 1. In addition, Swifty Co. incurred $29,000 of bond issuance costs. Compute the net amount of cash received by Swifty Co, as a result of the issuance of these bonds. (Round present value factor calculations to 5 decimal places, e.. 1.25124 and final answers to o decimal places, e.g. 5,275.) Net amount of cash received (b) on January 1, 2017, Nash Co. Issued 8% bonds with a face value of $646,000 for $531,864 to yield 11%. The bonds are dated January 1, 2017, and pay interest annually What amount is reported for interest expense in 2017 related to these bonds, assuming that Nash used the effective interest method for amortizing bond premium and discount? (Round answer to o decimal places, e.g. 38,548.) Interest expense to be reported for 2017 (c) Crane Building Co. has a number of long-term bonds outstanding at December 31, 2017. These long-term bonds have the following sinking fund requirements and maturities for the next 6 years. Sinking Fund Maturities 2018 $307,000 $90.000 2019 90,000 252,000 2020 90,000 90.000 2021 2000 10:33 AM

Answer 1

Answer of (a)

Net amount of cash received

= Face value + accrued interest + premium - bonds issuance cost

= $(4140000 + 55200 + 82800 - 29000)

= $4249000

Where,

Face value of bond = $4140000

Accrued interest = Face value x 8% x 2/12 = $4140000 x 8% x 2/12 = $55200

Premium = Face value x 2% = $4140000 x 2% = $82800

Answer of (b)

Interest expense to be reported for 2017

= Issue Price x Effective Interest rate

= $531864 x 11%

= $ 58505

Answer of (c)

Reporting in the Financial statements should be as follows:

Maturities and sinking fund requirements
2018	(307000 + 90000)	397000
2019	(90000 + 252000)	342000
2020	(90000 + 90000)	180000
2021	(200000 + 0)	200000