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.]
