1 answer

Millennial Works, Inc. issued $5,000,000 of 8%, five-year bonds on April 30, 2019. Interest on the...

Question:

Millennial Works, Inc. issued $5,000,000 of 8%, five-year bonds on April 30, 2019. Interest on the bonds is due on October 31
Millennial Works, Inc. issued $5,000,000 of 8%, five-year bonds on April 30, 2019. Interest on the bonds is due on October 31, and April 30 beginning on October 31. 2019: Required: 1. Prepare the journal entries necessary to record the 2019 activity if the bonds were sold to yield 8% 2. Show what would have appeared on the December 31, 2020 financial statements assuming the bonds were issued to yield 7.5%, 8% and 8.5% respectively. Be sure to show the proper description and classification for each item. Use both the direct and indirect methods to report cash flows from operations. Hint: A partial amortization schedule will make this easier. 7.5% 8.0% 8.5% Balance Sheet Income Statement Statement of Cash Flow

Answers

1 Journal
In the books of Millenial Works
S No Particulars Dr/Cr. Dr ($) Cr ($)
30-Apr-19 Bank A/c Dr      5,000,000
To 8% Bonds A/c Cr     5,000,000
(Being bonds issued)
31-Oct-19 Finance Cost A/c Dr         200,000
To 8% Bonds A/c Cr        200,000
(Being Interest accrued)
31-Oct-19 8% Bonds A/c Dr         200,000
To Bank A/c Cr        200,000
(Being interest paid)
31-Dec-19 Finance Cost A/c Dr         100,000
To 8% Bonds A/c Cr        100,000
(Being Interest accrued for 3 months, assuming 31 Dec as book closing date)
12-Jan Cash A/c Dr             5,800
To Sale of services A/c Cr             5,800
(Being amount received for sale of services)
2
Balance as on 31.12.2020
Year 7.50% 8% 8.50%
30-Apr-20              5,083,733        5,000,000             4,918,110
31-Dec-20              5,169,693        5,100,000             5,032,318
Balance as on 31-Dec-20 = (Balance as on 30-Apr-20)+((Balance as on 30-Apr-20)*Yield rate*9/12))-200000
Calculation of amortised cost of Bond as per IFRS 32 - Yield at 7.5%
Year Payment ($) PV @ 7.5% ($) Opening Balance Interest @ 7.5% Payment Closing Balance
30-Apr-20                 400,000            372,093             5,101,147               382,586      400,000              5,083,733
30-Apr-21                 400,000            346,133             5,083,733               381,280      400,000              5,065,013
30-Apr-22                 400,000            321,984             5,065,013               379,876      400,000              5,044,889
30-Apr-23                 400,000            299,520             5,044,889               378,367      400,000              5,023,256
30-Apr-24              5,400,000        3,761,417             5,023,256               376,744 5,400,000                            -  
Amortised Cost        5,101,147           1,898,853 7,000,000
Calculation of amortised cost of Bond as per IFRS 32 - Yield at 8%
Year Payment ($) PV @ 8% ($) Opening Balance Interest @ 8% Payment Closing Balance
30-Apr-20                 400,000            370,370             5,000,000               400,000      400,000              5,000,000
30-Apr-21                 400,000            342,936             5,000,000               400,000      400,000              5,000,000
30-Apr-22                 400,000            317,533             5,000,000               400,000      400,000              5,000,000
30-Apr-23                 400,000            294,012             5,000,000               400,000      400,000              5,000,000
30-Apr-24              5,400,000        3,675,149             5,000,000               400,000 5,400,000                            -  
Amortised Cost        5,000,000           2,000,000 7,000,000
Calculation of amortised cost of Bond as per IFRS 32 - Yield at 8.5%
Year Payment ($) PV @ 8.5% ($) Opening Balance Interest @ 8.5% Payment Closing Balance
30-Apr-20                 400,000            368,664             4,901,484               416,626      400,000              4,918,110
30-Apr-21                 400,000            339,782             4,918,110               418,039      400,000              4,936,149
30-Apr-22                 400,000            313,163             4,936,149               419,573      400,000              4,955,722
30-Apr-23                 400,000            288,630             4,955,722               421,236      400,000              4,976,959
30-Apr-24              5,400,000        3,591,245             4,976,959               423,041 5,400,000                            -  
Amortised Cost        4,901,484           2,098,516 7,000,000
Please note the following
Closing Balance = Balance sheet balance
Interest @ x% column shall go to Income Statement
Payment column shall go to Cash Flow Statement
.

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