Question

Universal Foods issued 12% bonds, dated January 1, with a face amount of $175 million on January 1, 2018. The bonds mature on December 31, 2032 (15 years). The market rate of interest for similar issues was 14%. Interest is paid semiannually on June 30 and December 31. Universal uses the straight-line method.

Required:
a. Determine the price of the bonds at January 1, 2018.
b. 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.

Answer 1

Answer:

Price of bond issued = $20,305,000 + $115,403,700 = $135,708,700

Explanation:

January 1 2018 ,

Investment in Bond issued by Universal Food (Dr.) $155,000,000

Discount on investment in Bonds issued by Universal Foods (Cr.) $19,291,300

Cash (Cr.) $135,708,700

June 30, 2018,

Cash (Dr.) $9,300,000

Discount in Investment in Bonds by Universal Foods (Dr.) $643,043

Interest Revenue (Cr.) $9,943,043

Dec 31, 2025,

Cash (Dr.) $9,300,000

Discount in Investment in Bonds by Universal Foods (Dr.) $643,043

Interest Revenue (Cr.) $9,943,043