Question

60 points Crystal Company issued 8% bonds, dated January 1, with a face amount of $600,000 on January 1, 2021. The bonds sold for $551,133 and mature in 2035 (15 years). For bonds of similar riskan maturity the market yield was 9%. Interest is paid semiannually on June 30 and December 31. Assume Crystal determines interest at the effective rate. Fiscal year ends on December 31. Answer the following questions: 1. What is the amount related to the bonds that Crystal will report in its balance sheet at December 31, 2021? 2. What is the amount related to the bonds that Crystal will report in its income statement for the year ended December 31, 2021? (Ignore income taxes.) 3. What is the amount related to the bonds that Crystal will report in its statement of cash flows for the year ended December 31, 2021? Indicate the category in which to classify ca flows. activities activities 4. Assume the entire bond issue was purchased by Omega Company. Omega is holding the bonds in its trading portfolio. The fair value of the bonds on December 31, 2021 is $561,233 a. At what amount will Omega report this investment in the December 31, 2021 balance sheet? b. What is the amount related to the bond investment that Omega will report in its income statement for the year ended December 31, 2021? (Ignore income taxes.) c. What is the amount related to the bond investment that Omega will report in its statement of cash flows for the year ended December 31, 2021? Indicate the category in whi to classify cash flows. activities activities (Do not odd 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)

please show all work

Answer 1

Explanation:

Coupon rate per period (8%/2)	4.00%
Face value of bond	$             600,000
Market rate per period (9%/2)	4.50%
Interest paid (600000*4%)	$               24,000
Interest paid on	Semi annually
Number of period (15*2)	30

Interest payment (Credit Cash) = Face value of bond * Coupon rate

Interest Expense (Debit Interest Expense) = Carrying value of bond for previous period * Market or Discounting rate

Amortization of bond Discount (Credit Bond Discount) = Interest Expense - Interest payment

Debit Balance in Bond Discount = Debit Balance in Bond Discount for previous period - Amortization of bond Discount

Credit Balance in Bond Payable = Face value of bond

Carrying value of bond = Credit Balance in Bond Payable - Debit Balance in Bond Discount

Issue price of bonds	$             551,133
Less: face value of Bond	$             600,000
Discount on Bond payable	$               48,867

Bond Discount Amortization Table
Period	Date	Interest payment	Interest Expense	Amortization of bond Discount	Debit Balance in Bond Discount	Credit Balance in Bond Payable	Carrying value of bond
0	Jan 1, 2021				48,867	600,000	551,133
1	Jun 30, 2021	24,000	24,801	801	48,066	600,000	551,934
2	Dec 31, 2021	24,000	24,837	837	47,229	600,000	552,771
Total		48,000	49,638				552,771

Answer:

Answer 1	Amount reported on bonds at Balance sheet 2021	552,771
Answer 2	Interest expense recorded in the income statement	49,638
Answer 3	Cash received by issuing the bonds (Financing activities - Cash inflows)	551,133
	Cash payment for interest (Operating activities - Cash outflows)	(48,000)
Answer 4	Amount of trading investment (reported at fair value)	561,233
Answer 5	Interest revenue received	48,000
	Unrealized gain on trading investments (561233-551133)	10,100
	Amount reported on the income statement	58,100
Answer 6	Cash payment for acquired trading investments (investing activities - Cash outflows)	(551,133)
	Cash receipts for interest revenue (operating revenue - Cash inflows)	48,000