Kraft Foods Inc. issued four tranches of notes in 2010 to finance its acquisition of Cadbury. The four types of notes were individually priced. Below you will find excerpts from their prospectuses and 8-K disclosure of material events. The Settlement Date is the date on which Kraft Foods Inc. received the proceeds from the note issue (some terms were modified for analytical simplicity). Questions for the assignment follow the excerpts, Kraft Foods Inc.'s notes prospectus Filed pursuant to Rule 433 Relating to Preliminary Prospectus Supplement dated February 3, 2010 to Prospectus Dated December 4, 2007 Registration Statement No. 333-147829 Pricing Term Sheet S9,500,000,000 $1,000,000,000 2.625% Notes due 2013 (the "2013 Notes") $1,750,000,000 4.125% Notes due 2016 (the "2016 Notes") $3,750,000,000 5.375% Notes due 2020 (the "2020 Notes") $3,000,000,000 6.500% Notes due 2040 (the "2040 Notes") Issuer: Kraft Foods Inc. ("Kraft") Offering Format: SEC Registered $1,000,000,000 of 2013 Notes $1,750,000,000 of 2016 Notes $3,750,000,000 of 2020 Notes $3,000,000,000 of 2040 Notes Size Maturity: 2013 Notes: May 8, 2013 2016 Notes: February 9, 2016 2020 Notes: February 10, 2020 2040 Notes: February 9,2040 2013 Notes: 2.625% 201 6 Notes: 4, 1 25% 2020 Notes: 5.375% 2040 Notes: 6.500% 2013 Notes: 99.731% 2016 Notes: 99.658% 2020 Notes: 99. I 76% 2040 Notes: 99.036% Coupon: Price to Public: 2013 Notes: Semi-annually in arrears on May 8 and November 8, commencing on November 8, 2010 Interest Payment Dates 2016 Notes: Semi-annually in arrears on February 9 and August 9, commencing on August 9, 201(0 2020 Notes: Semi-annually in arrears on February 10 and August 10, commencing on August 10, 2010 2040 Notes: Semi-annually in arrears on February 9 and August 9, commencing on August 9,2010 May 8, 2010 Settlement Date: Interest on the 2013 Notes is payable semiannually on May 8 and November 8, commencing November 8, 2010, to holders of record on the preceding April 23 and October 24. Interest on the 2016 Notes is payable semiannually on February 9 and August 9, commencing August 9, 2010, to holders of record on the preceding January 25 and July 25. Interest on the 2020 Notes is payable semiannually on February 10 and August 10, commencing August 10, 2010, to holders of record on the preceding January 26 and July 26. Interest on the 2040 Notes is payable semiannually on February 9 and August 9, commencing August 9, 2010, to holders of record on the preceding January 25 and July 25. Interest on the Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. The 2013 Notes will mature on May 8, 2013. The 2016 Notes will mature on February 9, 2016. The 2020 Notes will mature on February 10, 2020. The 2040 Notes will mature on February 9, 2040. Answer the following questions based on the prospectus of Kraft Foods Inc.'s bond issue. You can provide your answers in the spaces below or in a separate document. Are the notes issued at a premium or discount? How do you know? What is the coupon interest rate on the "2013 Notes"? What is the market rate of interest rate (also known as effective interest rate) on the "2013 Notes"? 1. 2 2. 3. 4. Show the journal entry for the "2013 Notes" on May 8, 2010. 5. Construct an amortization schedule that shows premium/discount amortization over the life of the "2013 Notes" (similar to the examples in class). 6. Show the journal entries for the ""2013 Notes" on November 8, 2010. 7. Assume the fiscal year ends on December 31,2010. Show the appropriate adjusting entries related to the "2013 Notes" (round interest for the period to the nearest month for simplicity). Show the entries on May 8,2011 (related to the "2013 Notes"), assuming the financial statements were correct on December 31, 2010 (round interest for the period to the nearest month for simplicity) 8. 9. Show the entries on November 8, 2011 (related to the "2013 Notes"). 10, Assume 60% of the "2013 Notes" are redeemed early on May 8, 2012 for $595,000,000 in cash. 6 9 Provide all the journal entries required on this date related to the "2013 Notes," assuming the financial statements were correct on December 31,2011. 11. Does the early redemption affect the income statement? If so, what is the effect? Kraft Foods Inc. issued four tranches of notes in 2010 to finance its acquisition of Cadbury. The four types of notes were individually priced. Below you will find excerpts from their prospectuses and 8-K disclosure of material events. The Settlement Date is the date on which Kraft Foods Inc. received the proceeds from the note issue (some terms were modified for analytical simplicity). Questions for the assignment follow the excerpts, Kraft Foods Inc.'s notes prospectus Filed pursuant to Rule 433 Relating to Preliminary Prospectus Supplement dated February 3, 2010 to Prospectus Dated December 4, 2007 Registration Statement No. 333-147829 Pricing Term Sheet S9,500,000,000 $1,000,000,000 2.625% Notes due 2013 (the "2013 Notes") $1,750,000,000 4.125% Notes due 2016 (the "2016 Notes") $3,750,000,000 5.375% Notes due 2020 (the "2020 Notes") $3,000,000,000 6.500% Notes due 2040 (the "2040 Notes") Issuer: Kraft Foods Inc. ("Kraft") Offering Format: SEC Registered $1,000,000,000 of 2013 Notes $1,750,000,000 of 2016 Notes $3,750,000,000 of 2020 Notes $3,000,000,000 of 2040 Notes Size Maturity: 2013 Notes: May 8, 2013 2016 Notes: February 9, 2016 2020 Notes: February 10, 2020 2040 Notes: February 9,2040 2013 Notes: 2.625% 201 6 Notes: 4, 1 25% 2020 Notes: 5.375% 2040 Notes: 6.500% 2013 Notes: 99.731% 2016 Notes: 99.658% 2020 Notes: 99. I 76% 2040 Notes: 99.036% Coupon: Price to Public: 2013 Notes: Semi-annually in arrears on May 8 and November 8, commencing on November 8, 2010 Interest Payment Dates 2016 Notes: Semi-annually in arrears on February 9 and August 9, commencing on August 9, 201(0 2020 Notes: Semi-annually in arrears on February 10 and August 10, commencing on August 10, 2010 2040 Notes: Semi-annually in arrears on February 9 and August 9, commencing on August 9,2010 May 8, 2010 Settlement Date: Interest on the 2013 Notes is payable semiannually on May 8 and November 8, commencing November 8, 2010, to holders of record on the preceding April 23 and October 24. Interest on the 2016 Notes is payable semiannually on February 9 and August 9, commencing August 9, 2010, to holders of record on the preceding January 25 and July 25. Interest on the 2020 Notes is payable semiannually on February 10 and August 10, commencing August 10, 2010, to holders of record on the preceding January 26 and July 26. Interest on the 2040 Notes is payable semiannually on February 9 and August 9, commencing August 9, 2010, to holders of record on the preceding January 25 and July 25. Interest on the Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. The 2013 Notes will mature on May 8, 2013. The 2016 Notes will mature on February 9, 2016. The 2020 Notes will mature on February 10, 2020. The 2040 Notes will mature on February 9, 2040. Answer the following questions based on the prospectus of Kraft Foods Inc.'s bond issue. You can provide your answers in the spaces below or in a separate document. Are the notes issued at a premium or discount? How do you know? What is the coupon interest rate on the "2013 Notes"? What is the market rate of interest rate (also known as effective interest rate) on the "2013 Notes"? 1. 2 2. 3. 4. Show the journal entry for the "2013 Notes" on May 8, 2010. 5. Construct an amortization schedule that shows premium/discount amortization over the life of the "2013 Notes" (similar to the examples in class). 6. Show the journal entries for the ""2013 Notes" on November 8, 2010. 7. Assume the fiscal year ends on December 31,2010. Show the appropriate adjusting entries related to the "2013 Notes" (round interest for the period to the nearest month for simplicity). Show the entries on May 8,2011 (related to the "2013 Notes"), assuming the financial statements were correct on December 31, 2010 (round interest for the period to the nearest month for simplicity) 8. 9. Show the entries on November 8, 2011 (related to the "2013 Notes"). 10, Assume 60% of the "2013 Notes" are redeemed early on May 8, 2012 for $595,000,000 in cash. 6 9 Provide all the journal entries required on this date related to the "2013 Notes," assuming the financial statements were correct on December 31,2011. 11. Does the early redemption affect the income statement? If so, what is the effect
