Digital Telephony issued 10% bonds, dated January 1, with a face
amount of $41 million on January 1, 2018. The bonds mature in 2028
(10 years). For bonds of similar risk and maturity the market yield
is 12%. Interest is paid semiannually on June 30 and December 31.
Digital recorded the issue as follows: (FV of $1, PV of $1, FVA of
$1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate
factor(s) from the tables provided.):
| General
Journal |
Debit |
Credit |
| Cash |
36,297,136 |
|
| Discount on bonds |
4,702,864 |
|
| Bonds payable |
|
41,000,000 |
|
Digital also leased switching equipment to Midsouth Communications,
Inc., on September 30, 2018. Digital purchased the equipment from
MDS Corp. at a cost of $15 million. The five-year lease agreement
calls for Midsouth to make quarterly lease payments of $978,869,
payable each September 30, December 31, March 31, and June 30, with
the first payment on September 30, 2018. Digital's implicit
interest rate is 12%.
Required:
1. What would be the amount(s) related to the
bonds that Digital would report in its statement of cash flows for
the year ended December 31, 2018, under the direct method?
2. What would be the amounts related to the lease
that Midsouth would report in its statement of cash flows
for the year ended December 31, 2018, under the direct
method?
3. What would be the amounts related to the lease
that Digital would report in its statement of cash flows
for the year ended December 31, 2018, under the direct
method?
4. Assume MDS manufactured the equipment at a cost
of $14 million and that Midsouth leased the equipment directly from
MDS. What would be the amounts related to the lease that MDS would
report in its statement of cash flows for the year ended December
31, 2018?