2) Bonds (20 points) On 1/1/1, a firm issues an annual 10% coupon rate, 3-year, $100 face value bond for $105.15. The internal rate of return of all bond cash flows is 8 percent. Bond payments are made on 12/31 of each of years 1 through 3.

A) Determine all cash flows on the bond.

B) Record the journal entries for the bond at issuance and at the end of each year. Indicate either in the journal entry or in separate calculations the amounts of the current and non-current bonds payable at each of these four points in time. (Either numbers or correct formulas for these amounts will get you full credit.)

Potentially Relevant Facts (dont worry about a few cents rounding error):

1/1.08=0.926

1/1.082=0.857

1/1.083=0.794

1/1.08+1/1.082=1.783

1/1.082+1/1.083=1.651

1/1.08+1/1.082+1/1.083=2.577

1/1.1=0.909

1/1.12=0.826

1/1.13=0.751

1/1.1+1/1.12=1.736

1/1.12+1/1.13=1.578

1/1.1+1/1.12+1/1.13=2.487

C) Explain all of the effects of the bond on the cash flow statement, with operating cash flow presented using the indirect method, in each of years 1 through 3.