3. What amount(s) related to the bonds would Baddour report in its statement of

Question

3. What amount(s) related to the bonds would Baddour report in its statement of cash flows for the year ended September 30, 2016? In which section(s) should the amount(s) appear? On January 1, 2016, Bradley Recreational Products issued $100,000, 9% four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at $96,768 to yield an annual return of 10%. P 14-3 Straight-ine and effective 31. The bonds were issu interest compared Required .LO14-2 1. Prepare an amortization schedule that determines interest at the effective interest rate 2. Prepare an amortization schedule by the straight-line method. 3. Prepare the journal entries to record interest expense on June 30, 2018, by each of the two approaches 4. Explain why the pattern of interest differs between the two methods. 5. Assuming the market rate is still 10%, what price would a second investor pay the first investor on June 30, 2018, for $10,000 of the bonds? On January 1, 2016, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31 Portions of the bond amortization schedule appear below: P 14-4 Bond amortization schedule Cash Effective Increase In LO14-2 Balance 331,364 331,932 11,364 11,932 12.528 320,000 6 638.637 320.000 6 663097 e here to search

Explanation / Answer

PART-1)

Payment number Cash Payment Effective interest Interest in balanc Carrying value

1 $4,500 $4,838 $338 $96,768

2 $4,500 $4,855 $355 $97,106

3 $4,500 $4,873 $373 $97,461

4 $4,500 $4,892 $392 $97,834

5 $4,500 $4,911 $411 $98,226

6 $4,500 $4,932 $432 $98,637

7 $4,500 $4,953 $43 $99,069

8 $4,500 $4,978 $478 $100,000

Totals $39,232 $3,232

PART-2)

Payment number Cash Payment Recorded interest Interest in balance Carrying value

1 $4,500 $4,904 $404 $96,768

2 $4,500 $4,904 $404 $97,172

3 $4,500 $4,904 $404 $67,576

4 $4,500 $4,904 $404 $97,980

5 $4,500 $4,904 $404 $98,384

6 $4,500 $4,904 $404 $98,788

7 $4,500 $4,904 $404 $99,596

8 $4,500 $4,904 $404 $100,000

Totals $39,232 $3,232

PART-3)

Debit Credit

Interest expense $4,911

Discount on bonds payable $411

Cash $4,500

Interest expense $4,904

Discount on bonds payable $404

Cash $4,500

PART-4)

With the straight-line method, a company can calculate the interest indirectly by allocating a premium or a discount equally for the each period over the term to maturity.It results in an unchanging dollar interest amount each period.  

Unchanging dollar amounts are not produced under the effective interest method. Under this method the dollar amounts of interest vary over the term to maturity because the percentage rate of interest remains constant, however applied to a changing debt balance

PART-5)

Price of bonds: 9,864

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