Question

Universal Foods issued 10% bonds, dated January 1, with a face amount of $200 million on January 1, 2018. The bonds mature on December 31 2037 20 years). The market rate of interest for similar issues was 12% Interest is paid semiannually on June 30 and December 31. Universal uses the straight line method. (FV of $1. PV of $1. EVA of $1. PVA of SL. FVAD of S1 and PVAD of Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds at January 1, 2018 2. to 4. Prepare the journal entry to record their issuance by Universal Foods on January 1, 2018, Interest on June 30, 2018 and interest on December 31, 2025 Complete this question by entering your answers in the tabs below. Regi Req 2 to 4

Answer 1

1)	Determine the price of the bonds at January 1,2018
	Particulars	Amounts($)
	Present Value of principal ( Note 1 )	$ 19,444,000
	Present value of Annuity of Interest ( Note 2 )	$ 150,463,000
	price of the bonds at January 1,2018	$ 169,907,000

Note 1 :

Present value of $ 1, N= 40 half years , i= 6 % per half year is 0.09722

($ 200,000,000 * 0.09722 )= $ 19,444,000

Note 2 :

interest per half year= $ 200,000,000 * 10%* 6 /12

interest per half year= $ 10,000,000

Present value of Annuity , N= 40 half years , i= 6 % per half year is 15.04630

($ 10,000,000 * 15.04630 ) = $ 150,463,000

No	Date	General Journal	Debit	Credit
2)	Jan 01 2018	Cash	$ 169,907,000
		Discount on Bond Payable (200,000,000 -169,907,000)	$ 30,093,000
		Bonds payable		$ 200,000,000
		(To record issuance by universal Foods on Jan 01,2018 )
3)	June 30 2018	Interest Expense (10,000,000+ 752,325 )	$ 10,752,325
		Discount on Bond Payable ($ 30,093,000 / 40 periods )		$ 752,325
		Cash ($200,000,000 *5%)		$ 10,000,000
		( To record interest expenses on June 30,2018)
4)	Dec 31, 2025	Interest Expense (10,000,000+ 752,325 )	$ 10,752,325
		Discount on Bond Payable ($ 30,093,000 / 40 periods )		$ 752,325
		Cash ($200,000,000 *5%)		$ 10,000,000
		( To record interest expenses on December 31,2025 )