Question #1 (35marks)

On March 1, 2018 Freeman Farm Implements Inc. (Freeman) issued $8,000,000 face amount of callable bonds.The callable feature of the bonds gives Freeman the right to retire any portion of the bonds on or after March 1, 2019.Proceeds from the bond issue were used to finance the construction of a new manufacturing facility.

The 5 year bonds had a face rate of interest of 5%, with interest to be paid semi-annually each March 1 and September 1.Interest on the bonds began accruing on March 1, 2018, however due to delays in finalizing details of the bond issue they were not sold to investors until June 1, 2018 when the market rate of interest was 6% per annum.

On September 1, 2019 the market rate of interest had dropped to 4%.After making the semi-annual interest payment, Freeman had cash available to retire 25% of the bonds, at the market rate, so they exercised the callable feature on that portion of the bonds payable.

Freeman has a December 31 fiscal year end and follows IFRS.

Required:

Please answer in the space provided, ensure to date all journal entries, and show all calculations!

a.Calculate the proceeds from the bond issue and prepare the journal entry to record the issuance on June 1, 2018.(6 marks)

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b.Prepare a bond amortization table for Freeman's $8,000,000 bonds up to and including September 1, 2019.(9 marks)

c.Prepare all necessary journal entries for Freeman to account for the bonds on each of September 1, 2018, December 31, 2018 and March 1, 2019.

(9 marks)

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d.Calculate the amount Freeman will have to pay to bondholders to retire 25% of the bonds on September 1, 2019, after having made the semi-annual interest payment, and prepare the appropriate journal entry to record the retirement.

(5 marks)

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e. Prepare Freeman's December 31, 2019 adjusting journal entry and the March 1, 2020 to entry record the company's semi-annual bond interest payment.

(6 marks)

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