Donnie Ltd. Issued 10-year, $81 million face value debentures on July 1, 2013. The bonds mature on June 30, 2023. The annual stated (coupon) rate is 5%, and interest must be paid semi-annually on January 1 and June 30. The annual market rate was 4% for similar bonds at the time of issuance. Donnie's fiscal year ends on December 31. Donnie uses the effective interest method.

1. Show how the liability accounts affected by this bonds payable would be presented on the statement of financial position as at December 31, 2013 2. Calculate the interest amounts that Donnie should report on the following financial statements as of December 31, 2014: a. Statement of cash flows; b. Income statement. Why are the amounts different? Explain 3. Should an investor buy a bond at premium or at discount? Be specific in your response. 4. Donnie decided on January 1, 2015 (immediately after paying interest to shareholders) to redeem the outstanding bonds at 106 percent. a. Show how the presentation of this transaction would be reported on: a) the statement of earnings and b) the statement of cash flows. Donnie uses the indirect method to prepare the operating section of the statement of cash flows. 5. Why would Donnie Corp. engage in an early redemption of its bonds?

Answer rating: 100% (QA)

ANSWER Presentation on the Statement of Financial Position as of December 31 2013 Donnie Ltd would report the bonds payable as a longterm liability un... View the full answer