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P 14 - 2 On January 1, 2018, Baddour Inc., issued 10% bonds with a face amount...

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Accounting

P 14 - 2

On January 1, 2018, Baddour Inc., issued 10% bonds with a faceamount of $160 million. The bonds were priced at $140 million toyield 12%. Interest is paid semiannually on June 30 and December31. Baddour's fiscal year ends September 30.

Question #1.) What amount(s) related to the bonds would Baddourreport in its balance sheet at September 30, 2018?

On 9/30/18 Interest expense - Interest payable is $4,212,000 -$4,000,000 = $212,000,000. I'm curious then, when subtracting theinterest payable from the interest expense what it would be on6/30/18? This is the 9th edition of Intermediate Accounting byauthors Spiceland, Nelson, and Thomas. Published by McgrawHill.

Answer & Explanation Solved by verified expert
4.4 Ratings (609 Votes)

1] Discount on bonds payable [on the date of issue] = 160000000-140000000 = $      2,00,00,000
2] Interest expense to be accounted on June 30, 2018 = 140000000*6% = $          84,00,000
Interest payable = 160000000*5% = $          80,00,000
Amortization of discount = 9600000-8000000 = $            4,00,000
Balance in discount account $      1,96,00,000
Carrying value of bonds as on June 30, 2018 = 160000000-19600000 = $    14,04,00,000
3] Interest expense for the second half upto 30th September, 2018 = 140400000*6%*3/6 = $ 42,12,000
Interest payable = 160000000*5%*3/6 = $ 40,00,000
Amortization of discount = 4212000-4000000 = $ 2,12,000
4] Amounts to be shown in the Balance Sheet as of 30.09.2018:
Bonds payable $    16,00,00,000
Less: Discount on bonds payable = 19600000-212000 = $      1,93,88,000
a] Bonds payable [carrying value] $    14,06,12,000
b] Interest payable $ 40,00,000

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