How would an investor classify an Anheuser-Busch 5 year, 2.65% bond it intends to hold to maturity?

With over 200 beer brands, Anheuser-Busch InBev is the largest beer company in the world (source: Wikipedia.) Its brands include Budweiser, Labatt Blue, Rolling Rock, and Michelob.

Anheuser-Busch is in the process of buying SABMiller.  Its purchase of SABMiller will add several beer brands to the Anheuser-Busch portfolio, including Coors and Miller.

To finance its purchase of SABMiller, Anheuser-Busch issued $46 billion of bonds on January 26, 2016.  Maturity dates for these bonds ranged from 3 to 30 years and the coupon rates on the bonds ranged from 1.9% up to 4.915%.  The bonds are issued in increments of $1,000.

Assume that Smythe Industries purchases a 5-year, 2.65% bond for $1,000 on the date of issuance. It plans to hold the bond until its maturity.

Questions

  1. Does Smythe Industries have an investment or a bond payable?
  2. Does Anheuser-Busch have an investment or a bond payable?
  3. Will this bond appear on Smythe’s income statement or balance sheet? How will this bond be classified on that statement?
  4. Will Smythe have interest revenue or interest expense on this bond? How much would the semi-annual interest payment be?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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