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 Interest Payable $106,737 5,000 Required (Round all your calculations to the nearest dollar amount): 1. Calculate the interest amounts that Blackcherry should report on the following financial statements as at December 31, 2019: [7 marks] a. Statement of cash flows; b. Income statement. 2. Why are these two interests amounts different? Explain. [4 marks] 3. On January 1, 2020, after paying interest to bondholders Blackcherry redeemed 20% of the outstanding bond at 102. Prepare the journal entry. [6 marks] 4. Why would Blackcherry Co. engage in an early redemption of its bonds? [4 marks] 5. Should an investor buy a bond at premium or at discount? Be specific in your response. [6 marks] 3 PART B The note below is adapted from Apple's Annual Report (Fiscal Year 2020). Note 10. Commitments and Contingencies Balance, beginning of year A B Balance, end of year Warranty Payable $3,570 2,740 (2,956) $3,354 [10 marks; 10 mins] Required: 1. If the amount of A increases by $100, what would be the impact on Apple's accounting equation? [5 marks] 2. If the amount of B increases by $100, what would be the impact on Apple's income statement? [5 marks]