Universal Foods issued 12% bonds, dated January 1, with a face amount of $200 million on January 1, 2013. The bonds mature on December 31, 2027 (10 years). The market rate of interest for similar issues was 14%. Interest is paid semiannually on June 30 and December 31. Universal uses the straight-line method. (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.) |
Required: | |
1. |
Determine the price of the bonds at January 1, 2013. (Enter your answer in whole dollars.) |
2. |
Prepare the journal entry to record their issuance by Universal Foods on January 1, 2013. (Enter your answers in whole dollars. If no entry is required for a transaction, select "No journal entry required" in the first account field.) |
3. |
Prepare the journal entry to record interest on June 30, 2013. (Enter your answers in whole dollars. If no entry is required for a transaction, select "No journal entry required" in the first account field.) |
4. |
Prepare the journal entry to record interest on December 31, 2020.(Enter your answers in whole dollars. If no entry is required for a transaction, select "No journal entry required" in the first account field.) |
Computation of Price of Bond |
Price of Bond = PV of Interest Payment for 10 year + PV of Face value at end of year 10 |
= ( Half yearly Interest AmountX Cumm PVF @7% for 20 )+ ( Face value X PVF@14% at 10) |
=(200X6%X10.594)+(200X0.50835) |
228.798 million |
2. Journal Entries for issuance of Bond ( $ in Million) | |||
Date | Particulars | Debit | Credit |
01-01-2013 | Cash | $228.80 | |
Premum on issue of bond | $28.80 | ||
Bond Payable | 200 | ||
3. Journal Entries to record interest of Bond ( $ in Million) | |||
Date | Particulars | Debit | Credit |
30-06-2013 | Interest expense | 10.56 | |
Premum on issue of bond (28.80/20) | $1.44 | ||
cash( 200 *6%) | 12 | ||
4. Journal Entries to record interest of Bond ( $ in Million) | |||
Date | Particulars | Debit | Credit |
31-12-2020 | Interest expense | 10.56 | |
Premum on issue of bond (28.80/20) | $1.44 | ||
cash( 200 *6%) | 12 |
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