On July 1, 2015, ABC Co. issued 10-year, $4,574 million maturity value, 3% coupon bonds when the market rate was 2% for a cash price of $4,994 million. Interest was payable semi-annually on Dec. 31 and June 30. ABC also issued $3,527 million face value, 20-year, zero coupon bonds on July 1, 2017, that matured on June 30, 2037, for a cash price of $2,619million. The effective market interest rate at issuance was 1.5%. ABC repurchased $1,143 million face value coupon bonds on June 30, 2020 for $1,220 million cash (after interest was paid) and $582 million in face value of the zero-coupon bonds on June 30, 2021 for a purchase price of $432 million cash.

Round percentages to two decimal places and dollar amounts should be in millions with no decimals. Rounding a percentage to two decimals example: 422/1368 = .30847 = 30.85%.

1. Show the calculations for how the cash prices were determined for both bond issuances and make the journal entries for each at issuance using discount or premium accounts if applicable. (Do not net the discount/premium in the Bond Payable account).

2. Prepare amortization schedules for both bond issuances beginning with the issuance date. Note interest is semi- annual for the coupon bonds and you may assume annual for the zero- coupon bonds. Be sure to include a column for the balance remaining in the bond discount or premium account as well as the book value. Use the effective interest method. Make sure your team reviews and agrees on these tables as they are used to answer questions 3 through 6 below.

3. What amount of interest expense for the bonds did ABC report on its calendar year income statement in 2019 for each bond separately and in total (be careful as both bonds were issued in the middle of the year)?

4. Interest expense is deductible on the corporate tax return. Assuming a corporate tax rate of 19% in 2019, how much did ABC save in taxes by deducting the interest expense? What was the after-tax interest cost in 2019?

5. At the end of June 30, 2020, what was the book value of the coupon bonds before the repurchase transaction? At the end of June 30, 2021, what was the book value of the zero-coupon bond before the repurchase transaction? Name the two accounts and their respective balances from the Balance Sheet that combine to determine the book value for each bond. Reference your entry in question 1 and your amortization tables for the unamortized premium/discount at these specific dates.

6. Prepare the journal entries to record the repurchase of some of the debt in 2020 and 2021. You must determine the percentage of the face value repurchased by dividing the repurchased amount by the original maturity value of the bonds. Please express that % with two decimal places.