Universal Foods issued 10% bonds, dated January 1, with a face amount of $140 million on January 1,

Universal Foods issued 10% bonds, dated January 1, with a face amount of $140 million on January 1,

2011. The bonds mature on December 31, 2025 (15 years). The market rate of interest for similar issues

was 12%. Interest is paid semiannually on June 30 and December 31. Universal uses the straightline

method. Use (Table 2) and (Table 4)

Required:

(1) Determine the price of the bonds at January 1, 2011. (Enter your answer in dollars not in millions.

Round "PV Factor" to 5 decimal places and final answer to the nearest dollar amount. Omit the

"$" sign in your response.)

Price of the bonds

$

120,729,210 ± 0.01%

(2) Prepare the journal entry to record their issuance by Universal Foods on January 1, 2011. (Enter your

answers in dollars not in millions. Round "PV Factor" to 5 decimal places and final answers to

the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Jan. 1, 2011 Cash 120,729,210 ± 0.01%

Discount on bonds payable 19,270,790 ± 0.01

Bonds payable 140,000,000 ± 0.01%

(3) Prepare the journal entry to record interest on June 30, 2011. (Enter your answers in dollars not in

millions. Round "PV Factor" to 5 decimal places and final answers to the nearest dollar amount.

Omit the "$" sign in your response.)

Date General Journal Debit Credit

June 30,

2011 Interest expense 7,642,360 ± 0.01%

Discount on bonds payable 642,360 ± 0 . 1%

Cash 7,000,000 ± 0.01%

(4) Prepare the journal entry to record interest on December 31, 2018. (Enter your answers in dollars not

in millions. Round "PV Factor" to 5 decimal places and final answers to the nearest dollar

amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Dec. 31,

2018 Interest expense 7,642,360 ± 0.01%

Discount on bonds payable 642,360 ± 0 . 1%

Cash 7,000,000 ± 0.01%

Explanation:

(1) Price of the bonds at January 1, 2011

Interest $ 7,000,000 ¥ × 13.76483* = $ 96,353,810

Principal $140,000,000 × .17411** = 24,375,400

Present value (price) of the bonds $ 120,729,210

¥ 5% × $140,000,000

* present value of an ordinary annuity of $1: n = 30, i = 6% (Table 4)

** present value of $1: n = 30, i = 6% (Table 2)

(3) June 30, 2011

Interest expense ($7,000,000 + $642,360) = 7,642,360

Discount on bonds payable ($19,270,790 ÷ 30) = 642,360

Cash (5% × $140,000,000) = 7,000,000

(4) December 31, 2018

Interest expense ($7,000,000 + $642,360) = 7,642,360

Discount on bonds payable ($19,270,790 ÷ 30) = 642,360

Cash (5% × $140,000,000) = 7,000,000

[Using the straightline method, each interest entry is the same.]