Question - Wonka Industries issued the following debt on August 31, 2015 to finance a new manufacturing facility for Chocolaty Chocolates:
1. Five-year bonds with a stated rate of 5%. The face value of the bonds is $8,000,000 and interest is paid semiannually on February 28 and August 31. The effective interest rate is 4%.
2. Four-year zero coupon bonds with a face value of $2,000,000. The effective rate on the bonds is 6% and interest is compounded semiannually.
3. Five-year bonds with a stated interest rate of 4% and a face value of $1,000,000. Interest is paid annually. The bond was exchanged for three machines with a total fair value of $915,796.
Required:
a. Prepare the journal entries for each bond issuance.
b. Prepare amortization schedules for each bond through August 31, 2018 (these will help solve the following requirements).
c. Show what would be reported on the balance sheet at December 31, 2016 related to the debt.
d. Show what would be reported on the 2017 income statement related to the debt.
e. Show what would be reported on the cash flow statements for the year ending December 31, 2017 related to the debt. Assume the indirect method is used to report cash flows from operations.