Omar Company issued 7% bonds, dated January 1, with a face amount of $1,00,000 on January...
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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
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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:
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