Omar Company issued 7% bonds, dated January 1, with a face amount of $1,00,000 on January...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Omar Company issued 7% bonds, dated January 1, with a face amount of $1,00,000 on January 1, 2024. The bonds sold for $913,540 and mature in 2038(15 years). For bonds of similar risk and maturity the market yield was 8%. Interest is paid semiannually on June 30 and December 31. Assume Omar determines interest at the effective rate. (Do not add dollar sign; do not add comma by yourself to your amount; round the answer to the whole number; use minus sign if the amount is negative) Answer the following questions: What is the amount related to the bonds that Omar will report in its balance sheet at December 31, 2024? What is the amount related to the bonds that Omar will report in its income statement for the year ended December 31, 2024? (Ignore income taxes. What is the amount related to the bonds that Omar will report in its statement of cash flows for the year ended December 31, 2024? Be sure to list the category, activity in which the cash flow is in. activities activities Assume Sunset Company purchased this entire bond issue sold by Omar, i.e., 7% of $1,000,000 bonds, at $913,540 on January 1,2024. Market yield was 8% and interest is paid semiannually on June 30 and December 31. Sunset is holding the bond investment as trading securities. The fair value of the bonds on December 31, 2024 is $920,000. 1. At what amount will Sunset report this investment in the December 31, 2024 balance sheet 2. What is the amount related to the bond investment that Sunset will report in its income statement for the year ended December 31, 2024? (Ignore income taxes.) 3. What is the amount related to the bond investment that Sunset will report in its statement of cash flows for the year ended December 31, 2024? Be sure to list the category of activity in which the cash Flow is in. activities activities Omar Company issued 7% bonds, dated January 1, with a face amount of $1,00,000 on January 1, 2024. The bonds sold for $913,540 and mature in 2038(15 years). For bonds of similar risk and maturity the market yield was 8%. Interest is paid semiannually on June 30 and December 31. Assume Omar determines interest at the effective rate. (Do not add dollar sign; do not add comma by yourself to your amount; round the answer to the whole number; use minus sign if the amount is negative) Answer the following questions: What is the amount related to the bonds that Omar will report in its balance sheet at December 31, 2024? What is the amount related to the bonds that Omar will report in its income statement for the year ended December 31, 2024? (Ignore income taxes. What is the amount related to the bonds that Omar will report in its statement of cash flows for the year ended December 31, 2024? Be sure to list the category, activity in which the cash flow is in. activities activities Assume Sunset Company purchased this entire bond issue sold by Omar, i.e., 7% of $1,000,000 bonds, at $913,540 on January 1,2024. Market yield was 8% and interest is paid semiannually on June 30 and December 31. Sunset is holding the bond investment as trading securities. The fair value of the bonds on December 31, 2024 is $920,000. 1. At what amount will Sunset report this investment in the December 31, 2024 balance sheet 2. What is the amount related to the bond investment that Sunset will report in its income statement for the year ended December 31, 2024? (Ignore income taxes.) 3. What is the amount related to the bond investment that Sunset will report in its statement of cash flows for the year ended December 31, 2024? Be sure to list the category of activity in which the cash Flow is in. activities activities
Expert Answer:
Answer rating: 100% (QA)
1 Amount related to the bonds on Omar Companys balance sheet at December 31 2024 The bonds were issued at a discount so the bond liability will be reported at the present value of the future cash flows To calculate this we need to determine the present value of the principal and the present value of the interest payments Present value of principal The face amount of the bonds is 1000000 which will be paid at maturity in 2038 Since the bonds have a 15year maturity we need to calculate the present value of 1000000 discounted at the market yield of 8 for 15 years PV of principal 1000000 1 00815 Present value of interest payments The bonds have a 7 coupon rate and interest is paid semiannually We need to calculate the present value of the interest payments using the market yield of 8 for 15 years PV of interest payments 7 of 1000000 1 1 1 008 215 2 008 2 Total amount related to the bonds on the balance sheet at December 31 2024 Bond liability PV of principal PV of interest payments 2 Amount related to the bonds on Omar Companys income statement for the year ended December 31 2024 Interest expense for the year is calculated based on the effective interest rate method The effective interest rate is the market yield at the time of issuance which is 8 applied to the carrying value of the bond liability at the beginning of the year Interest expense Carrying value of the bond liability at the beginning of the year Effective interest rate 3 Amount related to the bonds on Omar Companys statement of cash flows for the year ended December 31 2024 The statement of cash flows includes cash inflows and outflows related to the bond Cash paid for interest is calculated based on the coupon rate and the face value of the bond Cash paid for interest 7 of 1000000 2 Activities The amount related to the bonds will be reported under Longterm liabilities on the balance sheet The amount related to the bonds will be reported as Interest expense on the income statement The cash paid for interest will be reported under Operating activities on the statement of cash flows Now lets move on to Sunset Companys bond investment 1 Amount at which Sunset will report the investment in the December 31 2024 balance sheet The bond investment will be reported at fair value which is 920000 2 Amount related to the bond investment that Sunset will report in its income statement for the year ended December 31 2024 Since Sunset holds the bond investment as trading securities any change in fair value will be reported as a gain or loss in the income statement The amount will be the difference between the fair value at the end of the period and the initial purchase price Income statement amount Fair value at December 31 2024 Purchase price 3 Amount related to the bond investment that Sunset will report in its statement of cash flows for the year ended December 31 2024 The statement of cash flows will include cash inflows and outflows related to the bond investment The cash flow ... View the full answer
Related Book For
Intermediate Accounting
ISBN: 9781259722660
9th Edition
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas
Posted Date:
Students also viewed these finance questions
-
Rainbow Company wed 6% bonds, dated January 1, with a face amount of $500,000 on January 1, 2021. The bonds sold for 5661,665 and mature in 2035 (15 years) For bonds of similar risk and maturity the...
-
Defined blip as a pair of integers, written a,b) is the same if a+b= x+y, let B = {(x,y) = x.y = Z} and is defined as the following * operation (a,b) (c,d) = (a+c,b+d) Is B group under the operation...
-
Net income Depreciation expense Accounts receivable increase (decrease) Inventory increase (decrease) Accounts payable increase (decrease) Accrued liabilities increase (decrease) O Changes in current...
-
A popular consumer staple was displayed in different locations in the same aisle of a grocery store to determine what, if any, effect different placement might have on its sales. The product was...
-
In what circumstance is the x component of a vector given by the magnitude of the vector times the sine of its direction angle?
-
Use the coefficients of the multiple regression equation in Figure 13.5 to predict the lung capacity for a 10-year-old who is 57 inches tall and weighs 90 pounds, at a pressure of 30.2 inches and a...
-
The director of the West Arbor Senior Center decides to put together a database on the centers activities. The center currently takes written records of services provided to clients, but the director...
-
Consider a model of the Hecksher-Ohlin variety. A small, open economy produces two goods, bicycles and blue-jeans, using only two inputs, labour and capital, under constant returns to scale. Bicycles...
-
Why number 15 showing problem? Tutorial4.java Tutorial5.java Tutorial3.java *VRecord.java x 2 public class VRecord 3 1 4 public static void main(String[] args) {} 5 public int VID; 6 public String...
-
You are in the final year of your apprenticeship, working in a material testing laboratory. Your line manager has asked you to put together a booklet explaining materials, and their properties to the...
-
The shareholders of the Mango Company need to elect 10 new directors. There are 950,000 shares outstanding currently trading at $70 per share. You would like to serve on the board of directors;...
-
Tiger Golf Accessories sells golf shoes, gloves, and a laser-guided range-finder that measures distance. Shown below are unit cost and sales data. Sales mix is determined based upon total units sold....
-
Company: Red Robin Gourmet Burgers Reference: https://www.sec.gov/cgi-bin/viewer?action=view&cik=1171759&accession_number=0001171759-23-000015&xbrl_type=v Read the reference of Red Robin Gourmet...
-
Assume you will graduate when you are 22 years old, and that you will earn $60,000 in your first job. Assume further that your salary will grow at the rate of 3% per year. If you want to save...
-
$1,500 in meal and entertainment expenses show as a permanent difference for tax. Prepare the necessary adjusting entry. The company uses straight line depreciation for book and MACRS depreciation...
-
Show, if u(x, y) and v(x, y) are harmonic functions, that u + v must be a harmonic function but that uv need not be a harmonic function. Is e"e" a harmonic function?
-
At a stage of reaction turbine, the mean diameter of rotor is \(1.4 \mathrm{~m}\). the speed ratio is 0.7. Determine the blade inlet angle if the blade outlet angle is \(20^{\circ}\). The rotor speed...
-
A single row impulse turbine develops \(130 \mathrm{~kW}\) at a blade speed of \(180 \mathrm{~m} / \mathrm{s}\) using \(2 \mathrm{~kg} / \mathrm{s}\) of steam. The steam leaves the nozzle at \(400...
-
In a stage of impulse-reaction turbine, steam enters with a speed of \(250 \mathrm{~m} / \mathrm{s}\) at an angle of \(30^{\circ}\) in the direction of blade motion. The mean blade speed is \(150...
Study smarter with the SolutionInn App