Reference no: EM132831885

Question -

PART A - On January 1, 2018, Blackcherry Co. issued a 5-year bond with a face value of $100,000 and 10% coupon rate. The bond pays interest semi-annually on July 1 and January 1. At the time of issuance, the market rate was 8% for similar bonds. Blackcherry's fiscal year ends on December 31; and it uses the effective-interest method to amortize bond discount or premium.

Related to this bond, Blackcherry's records show the following at December 31, 2018.

Net Carrying Amount of Bond Payable $106,737

Interest Payable 5,000

Required -

1. Calculate the interest amounts that Blackcherry should report on the following financial statements as at December 31, 2019:

a. Statement of cash flows;

b. Income statement.

2. Why are these two interests amounts different? Explain.

3. On January 1, 2020, after paying interest to bondholders Blackcherry redeemed 20% of the outstanding bond at 102. Prepare the journal entry.

4. Why would Blackcherry Co. engage in an early redemption of its bonds?

5. Should an investor buy a bond at premium or at discount? Be specific in your response.

PART B - The note below is adapted from Apple's Annual Report (Fiscal Year 2020). Note 10. Commitments and Contingencies Warranty Payable Balance, beginning of year $3,570 A 2,740 B (2,956) Balance, end of year $3,354 Required:

1. If the amount of A increases by $100, what would be the impact on Apple's accounting equation?

2. If the amount of B increases by $100, what would be the impact on Apple's income statement?