Question

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Exercise 14-7 (Algo) Determine the price of bonds; issuance; straight-line method [LO14-2] Universal Foods issued 12% bonds, dated January 1, with a face amount of $225 million on January 1, 2021. The bonds mature on December 31, 2030 (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 ON 31) (Use appropriate factor(s) from the tables provided.) Sook Required: 1. Determine the price of the bonds at January 1, 2021. 2. to 4. Prepare the journal entries to record their issuance by Universal Foods on January 1, 2021, interest on June 30, 2021 and interest on December 31, 2028. Hint Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 to 4 rint Determine the price of the bonds at January 1, 2021. (Round final answers to the nearest whole dollars.) rences Table values are based on: Amount Present Value Cash Flow Interest Principal Price of bonds Req 1 Req 2 to 4 >

Answer 1

Table Values based on n = 20 i = 7% Cash Flow Table Value x Amount = Present Value Interest (Annuity) $10.5940 X $1,35,00,000 = $14,30,19,000 Par (Maturity) value $0.2584 x $22,50,00,000 = $5,81,40,000 Price of Bond $20,11,59,000 Straight Line Amortisation: In straight line amortization, the premium received or discount given on issue of bond is amortized over the bond period maturity on straight line basis. Formula is (Discount / Premium Amount) divided by bond period. Discount on Bond Payable $2,38,41,000 Amortisation per period $11,92,050 [$23841000/20] Journal Entry Date January 1, 2021 Credit $22,50,00,000 June 30, 2021 General Journal Debit Cash $20,11,59,000 Discount on Bond Payable $2,38,41,000 Bond Payable (To record issue of bond) Interest Expense $1,46,92,050 Discount on Bond Payable Cash (To record interest payment and amortisation) Interest Expense $1,46,92,050 Discount on Bond Payable Cash (To record interest payment and amortisation) $11,92,050 $1,35,00,000 3 December 31, 2028 $11,92,050 $1,35,00,000