(Learning Objective 2, 3, 5: Analyzing a company’s long term debt and reporting long term debt on the balance sheet (effective interest method)) Notes to the E Z Boy Recliners financial statements reported the following data on December 31, Year 1 (the end of the fiscal year):
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Note 6. Indebtedness Bonds payable, 5%, due in Year 6 |
$600,000 |
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Less: Discount |
(25,274) |
$574,726 |
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Notes payable, 8.3%, payable in $50,000 annual installments starting in Year 5 |
250,000 |
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E Z Boy amortizes bonds by the effective interest method.
Required
1. Answer the following questions about E Z Boy’s long term liabilities:
a. What is the maturity value of the 5% bonds?
b. What are E Z Boy’s annual cash interest payments on the 5% bonds?
c. What is the carrying amount of the 5% bonds at December 31, year 1?
2. Prepare an amortization table through December 31, Year 4, for the 5% bonds. The market interest rate for these bonds was 6%. E Z Boy pays interest annually on December 31. How much is E Z Boy’s interest expense on the 5% bonds for the year ended December 31, Year 4?
3. Show how E Z Boy Recliners, would report the bonds payable and notes payable at December 31, Year 4.