Question

Universal Foods issued 12% bonds, dated January 1, with a faceamount of $225 million on January 1, 2016. The bonds mature onDecember 31, 2025 (10 years). The market rate of interest forsimilar issues was 14%. Interest is paid semiannually on June 30and 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 tablesprovided.)

Required:

1.

Determine the price of the bonds at January 1, 2016.(Enter your answer in whole dollars.)

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When Patey Pontoons issued 6% bonds on January 1, 2016, with aface amount of $680,000, the market yield for bonds of similar riskand maturity was 11%. The bonds mature December 31, 2019 (4 years).Interest is paid semiannually on June 30 and December 31. (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 tablesprovided.)

Required:

1.

Determine the price of the bonds at January 1, 2016.

Table values are based on:
n =
i =
Cash Flow	Amount	Present Value
Interest
Principal
Price of bonds

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3.

Prepare an amortization schedule that determines interest at theeffective rate each period.

Semiannual Interest Period-End	Cash Interest	Bond Interest Expense	Discount Amortization	Carrying Value
01/01/2016
06/30/2016
12/31/2016
06/30/2017
12/31/2017
06/30/2018
12/31/2018
06/30/2019
12/31/2019
Total

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5.

What is the amount(s) related to the bonds that Patey willreport in its balance sheet at December 31, 2016?

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6.	What is the amount(s) related to the bonds that Patey willreport in its income statement for the year ended December 31,2016? (Ignore income taxes.)