Question

Federal Semiconductors issued 10% bonds, dated January 1, with a face amount of $890 million on January 1, 2021. The bonds sold for $818,591.740 and mature on December 31, 2040 (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 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 Req4 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 Journal entry worksheet 1 2 Record the interest on June 30, 2021 (at the effective rate).

Answer 1

Working notes: Based on PV table Amount PV factor at 5.5% 0.11746 16.04612 $890,000,000 $44,500,000 Face value-Bond Interest Issue price of Bond Face value of Bond Discount on issue of bonds PV of Cash flows $104,542,197 $714,052,548 $818,594,745 $890,000,000 $71,405,255 Cash interest at $890*10%/2 = $44.5 Million 1) Credit Date Account Titles and Explanation January 1,2021 Cash Discount on issue of bonds Bond payable (To record issue of bonds) Debit $818,594,745 $71,405,255 $890,000,000 2) Credit Debit $45,022,711 Date Account Titles and Explanation June 30,2021 Interest expense Discount on issue of bonds Cash (To record interest expense) $522,711 $44,500,000 3) Date Credit Debit $45,051,460 Account Titles and Explanation Dec 31, 2021 Interest expense Discount on issue of bonds Cash (To record interest expense) $551,460 $44,500,000 4) Period- End 01/01/2021 06/30/2021 12/31/2021 Amortization table Effective-Interest Method Cash Bond Interest Discount Carrying Interest Paid expense Amortization value $818,594,745 $44,500,000 $45,022,711 $522,711 $819,117,456 $44,500,000 $45,051,460 $551,460 $819,668,916 Answer