47 termine the ce of bonds uance straight e method 0142 Univ

4-7 termine the ce of bonds; uance; straight- e method 014-2 Universal Foods issued 10% bonds, dated January , with a face amount of $150 million on January 1, 2018, The bonds mature on December 31, 2032 (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 straight-line method. Required: 1. Determine the price of the bonds at January 1, 2018. 2. Prepare the journal entry to record their issuance by Universal Foods on January 1, 2018. 3. Prepare the journal entry to record interest on June 30, 2018. 4. Prepare the journal entry to record interest on December 31, 2025.

Solution

Answer 1. Table Value Based on n=                             30 (15 Years X 2) i= 6% (12% /2) Cash Flow Amount Present Value Interest - $150,000,000 X 10% X 6/12         7,500,000.00                            103,236,225 ($7,500,000 X 13.76483) Principal    150,000,000.00                              93,138,000 ($150,000,000 X 0.17411) Issue Price of Bonds                            196,374,225 Premium on issue of Bonds                              46,374,225 Answer 2, 3 & 4 Journal Entry S.No. Date Particulars Dr. Amt Cr. Amt 2 1-Jan-18 Cash          196,374,225 Bonds Payable          150,000,000 Premium on Issue of Bonds             46,374,225 (record the issue of Bonds) 3 30-Jun-18 Interest Expense               9,045,808 Cash               7,500,000 $150,000,000 X 10% X 6/12 Premium on Issue of Bond               1,545,808 $46,374,225 / 30 (record the payment of interest) 4 31-Dec-25 Interest Expense               9,045,808 Cash               7,500,000 $150,000,000 X 10% X 6/12 Premium on Issue of Bond               1,545,808 $46,374,225 / 30 (record the payment of interest)