Plz show all the calculation Iowa Fabricating, Inc. has three bond issues outsta
ID: 2519868 • Letter: P
Question
Plz show all the calculation
Iowa Fabricating, Inc. has three bond issues outstanding. For each bond, show what would have appeared on the December 31, 2016 financial statements in the space provided on page 4. Assume the statement of cash flow is prepared using the direct method. Be sure to show the proper description and classification for each item. Enter zeros where nothing should be reported. a) Bond 1-$1,000,000, 5.5% bonds issued on June 30, 2016 due December 31, 2021. Interest is payable June 30 and December 31. Bonds were initially priced to yield 5%. b) Bond 2--$1,000,000, 6.0% bonds due September 30, 2026. Interest is payable March 31 and September 30. The bonds were initially priced to yield 6.0% during 2014. c) Bond 3 --$1,000,000 zero-coupon bonds issued on Janaury 1, 2016 due December 31, 2025, initially priced to yield 6%. Interest is compounded semiannually.Explanation / Answer
Bond 1 Bond 2 Bond 3 Balance Sheet - Dec 31, 2016 Current Liabilities Interest Payable - 15,000 - Long-Term Liabilities Bond Payable 1,000,000 1,000,000 1,000,000 Premium on Issue of Bond 21,876 - - Discount on Issue of Bond - - (412,601) Bond Payable, net 1,021,876 1,000,000 587,399 Income Statement Interest Expense 25,595 15,000 33,719 Statement of Cash Flow Cash Flow from Operating Expense Interest Paid on Bonds (27,500) - - Cash Flow from Financing Activities Issue of Bonds 1,023,781 1,000,000 553,680 Bond 1 Table Value Based on n= 11.00 (5.50 years X 2) i= 2.50% (5% / 2) Cash Flow Amount Present Value Interest - $1,000,000 X 5.50% X 6/12 27,500.00 261,641 (27,500 X 9.51421) Principal 1,000,000.00 762,140 ($1,000,000 X 0.76214) Issue Price of Bond 1 1,023,781 Premium on issue of Bond 1 23,781 Interest Paid - 2016 = $1,000,000 X 5.50% X 6/12 = $27,500 Premium Amortization in 2016 = $27,500 - ($1,023,781 X 2.50%) Premium Amortization in 2016 = $1,905 Interest Expense = $1,023,781 X 2.50% = $25,595 Bond 2 Bond is issued at Par Interest Expense in 2016 = $1,000,000 X 6% X 3/12 = $15,000 Bond 3 Table Value Based on n= 20.00 (10 years X 2) i= 3.00% (6% / 2) Cash Flow Amount Present Value Interest - $1,000,000 X 0% - - Principal 1,000,000.00 553,680 ($1,000,000 X 0.55368) Issue Price of Bond 1 553,680 Discount on issue of Bond 3 446,320 Interest Expense / Amortization of Discount = ($553,680 X 3%) + [($553,680 + $16,610) X 3%] Interest Expense / Amortization of Discount = $16,610 + $17,109 Interest Expense / Amortization of Discount = $33,719
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