Question

Determine the amount of cash paid to bondholders for bond interest for each of the six independent situations below. All dollars are in millions. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Situation Bond Interest Expense Bond Interest Payable Increase (Decrease) Unamortization Discount Increase (Decrease) Cash Paid for Interest
1 16.0 0 0
2 16.0 2.6 0
3 16.0 -2.6 0
4 16.0 0 -3.6
5 16.0 2.6 -3.6
6 16.0 -2.6 -3.6

Answer 1

Answer:

Nª expense payable amortization    cash paid

1          16.0         0              0                  16

2         16.0      2.6              0                16 - 2.6 = 13.4

3         16.0     -2.6              0                16 + 2.6 = 18.6

4         16.0         0             -3.6             16 - 3.6 = 12.4

5         16.0       2.6            -3.6             16 - 2.6 - 3.6 =  9.80

6         16.0      -2.6            -3.6             16 +2.6 - 3.6 = 15.00

Explanation:

reasoning for interest payable

the payable if incrase means we aren't paying a portion of the expense thus, less cash to bondholders

decreaseing means we are paying the expense and previous debt thus extra cash

reasoning for amortization:

the discount on BP means the bondholder pay less for the bond thus, the interest expense is greater than our cash payment thus, we must reduced based on the amount we amortized.