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, 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

Answer 1

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 in the above table = Balance sheet balance

Interest @ x% column shall go to Income Statement

Payment column shall go to Cash Flow Statement