Question

Federal Semiconductors issued 8% bonds, dated January 1, with a face amount of $740 million on January 1, 2021. The bonds sold for $671,914,968 and mature on December 31, 2040 (20 years). For bonds of similar risk and maturity the market yield was 9%. Interest is paid semiannually on June 30 and December 31.

Required:
1. to 3. Prepare the journal entries to record their issuance by Federal on January 1, 2021, interest on June 30, 2021 (at the effective rate) and interest on December 31, 2021 (at the effective rate).
4. At what amount will Federal report the bonds among its liabilities in the December 31, 2021, balance sheet?

Answer 1

Face value of bonds 9740000000 Issue Price $ 671914968 s ! * Discount on issue of of bonds - face value - Issue price , - 740000000-671914968 ! 68085032 1 and T o .. Interest for Semi Annicu Period Byrui. MKT. Interest Rate for semiannual periodo 96 3.45. 8 0

Effective interest Amortization

A	B	C	D	E	F	G
Date	Interest payment ( stated rate 4%*face value)	Interest payment    ( market rate 4.5%*book value in G)	Amortization of bond discount (C-B)	debit balance in discount on bond account	balance in bond A/c payable	book value of bonds
	Credit Cash	Debit Interest Expense	credit bond discount			(F-E)
1/1/2021				68085032	740000000	671914968
30/06/2021	29600000	30236173.56	636173.6	67448858	740000000	672551142
31/12/2021	29600000	30264801.37	664801.37	66784057	740000000	673215943

	Journal Entries
dd/mm/yyyy
date	pariculars	debit	credit
1/1/2021	CASH A/C	740000000
	TO Discount on Bonds Payable		68085032
	TO bonds payable A/c		671914968
30/06/2021	Interest Expense A/c	30236173.56
	TO Discount on Bonds Payable A/c		636173.6
	TO cash A/c		29600000
31/12/2021	Interest Expense A/c	30264801.37
	TO Discount on Bonds Payable A/c		664801.37
	TO cash A/c		29600000

problem -2
balance sheet
face value of bonds	740000000
less ; discount on bonds	66784507
bonds payable		673215493

Face value of bonds 9740000000 Issue Price $ 671914968 s ! * Discount on issue of of bonds - face value - Issue price , - 740000000-671914968 ! 68085032 1 and T o .. Interest for Semi Annicu Period Byrui. MKT. Interest Rate for semiannual periodo 96 3.45. 8 0