Question

Federal Semiconductors issued 13% bonds, dated January 1, with a face amount of $780 million on January 1, 2018. The bonds sold for $728,006,097 and mature on December 31, 2037 (20 years). For bonds of similar risk and maturity the market yield was 14%. Interest is paid semiannually on June 30 and December 31. Required: 1. to 3. Prepare the journal entry to record their issuance by Federal on January 1, 2018, interest on June 30, 2018 (at the effective rate) and interest on December 31, 2018 (at the effective rate). 4. At what amount will Federal report the bonds among its liabilities in the December 31, 2018, balance sheet?

Answer 1

	Amortization Schedule
	year	Cash	interest	Discount	Carrying
		interest	expense	amortized	value
		6.50%	7%
		A	b=CV*7%	c=b-a	D=CV+c
	1/1/2018				728,006,097
	6/30/2018	50700000	50960427	260427	728266524
	12/31/2018	50700000	50978657	278657	728545180
		interest paid = 780*1000000*6.5%
			50700000
	Journal Entries
	Date	Accounting titles & Explanations			Debit	Credit
	1/1/2018	Cash			728,006,097
		Discount on bonds payable			51,993,903
		Bonds payable				780,000,000
	6/30/2018	Interest expense			50960427
		Discount on bonds payable				260427
		cash				50700000
	12/31/2018	Interest expense			50978657
		Discount on bonds payable				278657
		cash				50700000
	4)	Federal will report bonds in liabilities section
		at	728545180