Question

# International Foods issued 10% bonds, dated January 1, with a face amount of \$140 million on...

International Foods issued 10% bonds, dated January 1, with a face amount of \$140 million on January 1, year 1. The bonds mature on December 31, after 15 years. The market rate of interest for similar issues was 12%. Interest is paid semiannually on June 30 and December 31. International uses the straight-line method.

Required:

1. Determine the price of the bonds at January 1, year 1.

2. Prepare the journal entry to record their issuance by International Foods on January 1, year 1.

3. Prepare the amortization schedule for bond’s duration

4. Prepare the journal entry to record interest on June 30, year 1.

5. Prepare the journal entry to record interest on December 31, year 7.

 Table values are based on: Face Amount \$140,000,000 Interest Payment \$140,000,000*10%*6/12 =\$7,000,000 Market Interest rate per period 2.50% Cash Flow Table Value(PV of 6% for 30 period) Amount Present Value PV of Interest 13.76843 \$70,00,000 \$9,63,79,010 PV of Principal 0.17411 \$14,00,00,000 \$2,43,75,400 PV of Bonds Payable(Issue Price) \$12,07,54,410 Discount on Bonds =\$140,000,000 - \$120,754,410 =\$19,245,590 Discount amortization on each period =\$19,245,590 / 30 =\$641,520 Interest paid in cash in each period =\$7,000,000 Interest expenses for each period =\$641,520 + \$7,000,000 =\$7,641,520 Date Interest Payment Interest expenses Discount amorrtization Bond carrying amount Jan 1,Year 1 12,07,54,410 Jun 30,Year 1 70,00,000 76,41,520 6,41,520 12,13,95,930 Dec 31,Year 1 70,00,000 76,41,520 6,41,520 12,20,37,450 Jun 30,Year 2 70,00,000 76,41,520 6,41,520 12,26,78,970 Dec 31,Year 2 70,00,000 76,41,520 6,41,520 12,33,20,490 Jun 30,Year 3 70,00,000 76,41,520 6,41,520 12,39,62,010 Dec 31,Year 3 70,00,000 76,41,520 6,41,520 12,46,03,530 Jun 30,Year 4 70,00,000 76,41,520 6,41,520 12,52,45,050 Dec 31,Year 4 70,00,000 76,41,520 6,41,520 12,58,86,570 Jun 30,Year 5 70,00,000 76,41,520 6,41,520 12,65,28,090 Dec 31,Year 5 70,00,000 76,41,520 6,41,520 12,71,69,610 Jun 30,Year 6 70,00,000 76,41,520 6,41,520 12,78,11,130 Dec 31,Year 6 70,00,000 76,41,520 6,41,520 12,84,52,650 Jun 30,Year 7 70,00,000 76,41,520 6,41,520 12,90,94,170 Dec 31,Year 7 70,00,000 76,41,520 6,41,520 12,97,35,690 Jun 30,Year 8 70,00,000 76,41,520 6,41,520 13,03,77,210 Dec 31,Year 8 70,00,000 76,41,520 6,41,520 13,10,18,730 Jun 30,Year 9 70,00,000 76,41,520 6,41,520 13,16,60,250 Dec 31,Year 9 70,00,000 76,41,520 6,41,520 13,23,01,770 Jun 30,Year 10 70,00,000 76,41,520 6,41,520 13,29,43,290 Dec 31,Year 10 70,00,000 76,41,520 6,41,520 13,35,84,810 Jun 30,Year 11 70,00,000 76,41,520 6,41,520 13,42,26,330 Dec 31,Year 11 70,00,000 76,41,520 6,41,520 13,48,67,850 Jun 30,Year 12 70,00,000 76,41,520 6,41,520 13,55,09,370 Dec 31,Year 12 70,00,000 76,41,520 6,41,520 13,61,50,890 Jun 30,Year 13 70,00,000 76,41,520 6,41,520 13,67,92,410 Dec 31,Year 13 70,00,000 76,41,520 6,41,520 13,74,33,930 Jun 30,Year 14 70,00,000 76,41,520 6,41,520 13,80,75,450 Dec 31,Year 14 70,00,000 76,41,520 6,41,520 13,87,16,970 Jun 30,Year 15 70,00,000 76,41,520 6,41,520 13,93,58,490 Dec 31,Year 15 70,00,000 76,41,510 6,41,510 14,00,00,000 Date Accounts and explanation Debit(in \$) Credit(in \$) Jan 1, Year 1 Cash \$12,07,54,410 Discount on issue of Bonds \$1,92,45,590 Bonds Payable \$14,00,00,000 Jun 30, Year 1 Interest Expenses 76,41,520 Discount on issue of Bonds 6,41,520 Cash 70,00,000 Dec 31,Year 7 Interest Expenses 76,41,520 Discount on issue of Bonds 6,41,520 Cash 70,00,000