Universal Foods issued 8% bonds, dated January 1, with a face amount of $225 mil
ID: 2408773 • Letter: U
Question
Universal Foods issued 8% bonds, dated January 1, with a face amount of $225 million on January 1, 2018, The bonds mature on December 31, 2027 (10 years). The market rate of Interest for similar issues was 10%. Interest is paid semiannually on June 30 and December 31. Universal uses the stralght-lne method. (FV of $1. PV of $1 FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1 (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 thelr Issuance by Unversal Foods on January 1, 2018, Interest on June 30, 2018 and Interest on December 31, 2025. r is not complete. Complete this question by entering your answers in the tabs below. Req 1 Req 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. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Debit 96,960,027 28,039,973 No Date January 01 2018 Cash Discount on bonds payable Bonds payable 225,000,000 7,878,401 01 1,121,599 * Interest expense Discount on bonds payable Cash 9,000,000 Interest expense 11804556 31, 2025 Discount on bonds payable Cash 848,001 9,000,000Explanation / Answer
No. Date General Journal Debit Credit 1 January 1, 2018 Cash $ 19,69,60,027 Discount on bonds payable $ 2,80,39,973 Bonds Payable $ 22,50,00,000 2 June 30, 2018 Interest expense $ 1,04,01,999 Discount on bonds payable $ 14,01,999 Cash $ 90,00,000 3 December 31, 2025 Interest expense $ 1,04,01,999 Discount on bonds payable $ 14,01,999 Cash $ 90,00,000 Workings: a. Par Value $ 22,50,00,000 Semi annual Bonds $ 22,50,00,000 x 4% $ 90,00,000 Semi annual period 10*2 20 Semi annual Yield 10%/2 5% b. Present Value of annuity of 1 = (1-(1+0.05)^-20)/0.05 = 12.462 Present Value of 1 = 1.05^-20 = 0.377 c. Present value of couon interest $ 90,00,000 x 12.462 = $ 11,21,59,893 Present Value of Par Value $ 22,50,00,000 x 0.377 = $ 8,48,00,134 Present Value of Cash flow from bond $ 19,69,60,027 d. face Value of bonds $ 22,50,00,000 Current Issue proceeds of bonds $ 19,69,60,027 Discount on bonds payable $ 2,80,39,973 c. Sraight Line amortization each semi annual period $ 2,80,39,973 / 20 = $ 14,01,999
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