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In: Accounting

Federal Semiconductors issued 13% bonds, dated January 1, with a face amount of $780 million on...

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?

Solutions

Expert Solution

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

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