Exercise 14-7 (Algo) Determine the price of bonds; issuance; straight-line method [LO14-2]

Universal Foods issued 10% bonds, dated January 1, with a face amount of $110 million on January 1, 2021. The bonds mature on December 31, 2040 (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. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds at January 1, 2021.

2. to 4. Prepare the journal entries to record their issuance by Universal Foods on January 1, 2021, interest on June 30, 2021 and interest on December 31, 2028.

Table values are based on: n = Amount Present Value Cash Flow Interest Principal Price of bonds 2 3 Record the issuance of the bond on January 1, 2021. Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2021 Record the interest on June 30, 2021. Note: Enter debits before credits. General Journal Debit Credit Date June 30, 2021 Record the interest on December 31, 2028 Note: Enter debits before credits. General Journal Debit Credit Date December 31, 2028