Universal Foods issued 10% bonds, dated January 1, with a face amount of $260 mi

Question

Universal Foods issued 10% bonds, dated January 1, with a face amount of $260 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 December 31, Universal uses the straight-line method. Evo 1, P of $LEVA of $1. PVA of $1 EVAD of $1 and DVAD of SD (Use appropriate factor(s) from the tables provided.) Required 1. Determine the price of the bonds at January 1, 2018. 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 on December 31, 2025. Req 1 Req 2 to 4 Determine the price of the bonds at January 1, 2018. (Enter your answers in whole dollars.) Table values are based on: Cash Flow Interest Principal AmountPresent Value Price of bonds Req Req 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 on December 31, 2025. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select No journal entry required" in the first account field.)

Explanation / Answer

working notes:

Table values are based on: n= 40 i= 6% Cash flow Amount PV interest 13,000,000 195,601,900.00 principal 260,000,000     25,277,200.00 price of bonds 220,879,100.00 Date Account titles & Explanations Debit Credit 1/1/2018 Cash 220,879,100 Discount on bonds 39,120,900 bonds payable 260,000,000 6/30/208 interest expense         13,978,023 Discount on bonds (39,120,900/40) 978023 cash 13,000,000 12/31/2018 interest expense 13,978,022.50 Discount on bonds (39,120,900/40) 978023 cash 13,000,000

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