You have the following information for Brophy, Inc. Long-Term Debt ($ in millions) 7% debentures, $300 million face value, due Year 11, effective rate $14.6% Zero coupon bonds, $500 million face value, due Year 8, effective rate 12.0% Mortgage debt, $850 million face value, due Year 5, effective rate 8.7%, secured by corporate headquarters. Various other long-term debt Total long-term debt December 31 Year 2 S $ 188.6 267.9 834.5 12,444.2 13,735.2 Year 1 $ 182.7 239.2 833.9 16,329.2 $ 17,585.0
You have the following information for Brophy, Inc. Long-Term Debt ($ in millions) 7% debentures, $300 million face value, due Year 11, effective rate $14.6% Zero coupon bonds, $500 million face value, due Year 8, effective rate 12.0% Mortgage debt, $850 million face value, due Year 5, effective rate 8.7%, secured by corporate headquarters. Various other long-term debt Total long-term debt December 31 Year 2 S $ 188.6 267.9 834.5 12,444.2 13,735.2 Year 1 $ 182.7 239.2 833.9 16,329.2 $ 17,585.0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problems 12-9 Reading the financials (LO 12-1, LO 12-2, LO 12-7)
You have the following information for Brophy, Inc.
Long-Term Debt ($ in millions)
7% debentures, $300 million face value, due Year 11, effective rate $14.6%
Zero coupon bonds, $500 million face value, due Year 8, effective rate 12.0%
Mortgage debt, $850 million face value, due Year 5, effective rate 8.7%, secured by corporate headquarters
Various other long-term debt
Total long-term debt
Assume the interest for all the bonds are based on annual basis.
Required:
December 31
Year 2
$
$
188.6
267.9
834.5
12,444.2
13,735.2
Year 1
$ 182.7
239.2
833.9
16,329.2
$ 17,585.0
1. How much interest expense did the company record during Year 2 on the 7% debentures? How much of the original issue discount was amortized during Year 2?
2. How much interest expense did the company record during Year 2 on the zero coupon bonds?
3. Suppose that interest payments on the mortgage are made on December 31 of each year. What journal entry did the company make in Year 2 to recognize interest expense on this debt?
4. How much cash interest did the company pay out during Year 2 on the 7% debentures and the zero coupon bonds?
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VIEWStep 2: (1) Determine the interest expense did the company record during Year 2 on the 7% debentures:
VIEWStep 3: Determine the original issue discount was amortized during Year 2:
VIEWStep 4: (2) Determine the interest expense did the company record during Year 2 on the zero coupon bonds:
VIEWStep 5: (3) Prepare the journal entry the company make in Year 2 to recognize interest expense on this debt:
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