Universal Foods issued 10% bonds, dated January 1, with a face amount of $110 mi

Question

Universal Foods issued 10% bonds, dated January 1, with a face amount of $110 million on January 1, 2018. The bonds mature on December 31, 2037 (20 years). The market rate of interest for similar issues was 12%. Interest is paid semiannually on June 30 and appropriate factor(s) from the tables provided.) Required: 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 Se 1. 14 Prepare hejoualeny s tecan ter buance by Universal Fods on January 1.2o18,Interest on June 30.2018 and nterest on December 31, 2025.

Explanation / Answer

1 n= 40 I = 6% Cash flow Amount Present value Interest 5500000 82754650 Principal 110000000 10694200 Price of bonds 93448850 2 Jan-01 Cash 93448850 Discount on bonds payable 16551150          Bonds payable 110000000 Jun-30 Interest expense 5913779         Discount on bonds payable 413779 =16551150/40         Cash 5500000 Dec-31 Interest expense 5913779         Discount on bonds payable 413779         Cash 5500000

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