Frank Suit Ltd. designs and manufactures anti-gravity suits used by air force pilots and astronauts for space

Question:

Frank Suit Ltd. designs and manufactures anti-gravity suits used by air force pilots and astronauts for space travel. To finance the expansion of its manufacturing operations, the company, in consultation with an investment bank, decided to issue bonds. On August 1, it issued 10-year, semi-annual bonds with a face value of $125 million. The contract rate on the bonds was 12% and the proceeds on the issuance of the bonds were $118,112,500 to yield 13.0%. Interest payments are to be made each January 31 and July 31.

Required

a. Determine the price of the bonds on issuance and prepare the journal entry to record the bonds’ sale on August 1.

b. Provide the journal entries to record the first two interest payments. Ignore year-end accruals of interest.

c. What amount will be reported for the bond liability on the company’s statement of financial position at December 31 of the first year?

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...

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