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11 February, 10:16

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.

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Answers (2)
  1. 11 February, 11:40
    0
    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
  2. 11 February, 13:55
    0
    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
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