Question

Universal Foods issued 10% bonds, dated January 1, with a face amount of $110 million on January 1, 2021. The bonds mature on December 31, 2040 (20 years). The market rate of interest for similar issues was 12%. Interest is paid semiannually on June 30 and December 31. Universal uses the straight-line 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, 2021.2. to 4. Prepare the journal entries to record t

Answer 1

market price:

PV of face value = $110 / (1 + 6%)⁴⁰ = $10.694 million

PC of coupon payments = $5.5 x 15.046 (PV annuity factor, 6%, 40 periods) = $82.753 million

market value = $93.447 million

January 1, 2021

Dr Cash 93.447 million

Dr Discount on bonds payable 16.553 million

Cr Bonds payable 110 million

the question is incomplete

amortization of bond discount:

first coupon payment = (93.447 x 6%) - 5.5 = $106,820

second coupon payment = (93,340,180 x 6%) - 5,500,000 = $100,411

June 30, 2021

Dr Interest expense 5,606,820

Cr Cash 5,500,000

Cr Discount on bonds payable 106,820

December 31, 2021

Dr Interest expense 5,600,411

Cr Cash 5,500,000

Cr Discount on bonds payable 100,411