Question

Federal Semiconductors issued 10% bonds, dated January 1, with a face amount of $760 million on January 1, 2018. The bonds sold for $699,022,160 and mature on December 31, 2037 (20 years). For bonds of similar risk and maturity the market yield was 11%. Interest is paid semiannually on June 30 and December 31. Required: 1. to 3. Prepare the journal entry to record their issuance by Federal on January 1, 2018, interest on June 30, 2018 at the effective rate) and interest on December 31, 2018 (at the effective rate). 4. At what amount will Federal report the bonds among its liabilities in the December 31, 2018, balance sheet? Complete this question by entering your answers in the tabs below. Reg 1 to 3 Reg 4 Prepare the journal entry to record their issuance by Federal on January 1, 2018, interest on June 30, 2018 at the effective rate) and interest on December 31, 2018 (at the effective rate). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) View transaction list Journal entry worksheet < 1 2 3 Record the issuance of the bond on January 1, 2018. < Prex 1 of 3 Next >

Answer 1

Solution 1 to 3:

Journal Entries
Date	Particulars	Debit	Credit
01-Jan	Cash A/c Dr	$69,90,22,160
	Discount on bond Payable Dr	$6,09,77,840
	To bonds payable		$76,00,00,000
	(Being bond issued at Discount)
Date	Particulars	Debit	Credit
30-Jun	Interest Expense Dr ($699022160*11%*6/12)	$3,84,46,219
	To Discount on Bond payable		$4,46,219
	To Cash ($760,000,000*10%*6/12)		$3,80,00,000
	(To record first Interest Payment and Amortization of discount on issue)
Date	Particulars	Debit	Credit
31-Dec	Interest Expense Dr [($699022160 +446219)*11%*6/12]	$3,84,70,761
	To Discount on Bond payable		$4,70,761
	To Cash ($760,000,000*10%*6/12)		$3,80,00,000
	(To record second Interest Payment and Amortization of Discount on issue)

Solution 4:

Period end	Cash interest paid	Interest expense	Discount amortization	Carrying value
01-01-2018				699022160
30-06-2018	38000000	38446219	446219	699468379
31-12-2018	38000000	38470761	470761	699939140