Question

Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $770 million on January 1, 2021. The bonds sold for $712,070,205 and mature on December 31, 2040 (20 years). For bonds of similar risk and maturity the market yield was 12%. 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? Complete this question by entering your answers in the tabs below. Req 1 to 3 Reg 4 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). (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 View journal entry worksheet ♡ Х Debit Credit 712,070,205 57,929,795 1 Record the issuance of the bond on January 1, 2021. 770,000,000 2 Record the interest on June 30, 2021 (at the effective rate) 42,724,212 3 Record the interest on December 31, 2021 (at the effective rate) 374,212 42,350,000 39,184,443 7,015,557 46,200,000

Answer 1

Semi annual cash interest = 770,000,000*11%*6/12 =	4,23,50,000
Amort Chart
Period end	Cash Int	Bond Int.	Discount	Carrying
		Expense	amortized	Value
01.01.21				71,20,70,205
30.06.21	4,23,50,000	4,27,24,212	3,74,212	71,24,44,417
31.12.21	4,23,50,000	4,27,46,665	3,96,665	71,28,41,082
Journal Entries
Date	Accounts title and explanations		Debit $	Credit $
01.01.21	Cash				71,20,70,205
	Discount on bonds payable		5,79,29,795
	Bonds payable				77,00,00,000
	(for issuance of bonds)
30.06.21	Interest expense			4,27,24,212
	Cash account				4,23,50,000
	Discount on bonds payable			3,74,212
	(for interest expense incurred)
31.12.21	Interest expense			4,27,46,665
	Cash account				4,23,50,000
	Discount on bonds payable			3,96,665
	(for interest expense incurred)
Req 4.
Balance Sheet (Extract)
Bonds Payable			77,00,00,000
Less: Discount on bonds payable		5,71,58,918
	(579,29,795-374,212-396,665)
Net Bonds payable				71,28,41,082