Question

Universal Foods issued 12% bonds, dated January 1, with a face amount of $140 million on January 1, 2021 to Wang Communications. The bonds mature on December 31, 2035 (15 years). The market rate of interest for similar issues was 14%. 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 tables provided.)

Required:
1. to 3. Prepare the journal entries to record the purchase of the bonds by Wang Communications on January 1, 2021, interest revenue on June 30, 2021 and interest revenue on December 31, 2028. (Round final answers to the nearest whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

						Period	Opening value	Cashflows	Interest	Ending value	Premium amortizaiton
						1	$122,627,736	$8,400,000	$8,583,942	$122,811,678	$183,942
	Present value annuity factor@7% for 30 periods	12.40904			31-Dec-21	2	$122,811,677.52	$8,400,000	$8,596,817	$123,008,495	$196,817
	Periodic Cashflow	8400000				3	$123,008,494.95	$8,400,000	$8,610,595	$123,219,090	$210,595
	Present value of periodic cashflows	$104,235,936			31-Dec-22	4	$123,219,089.59	$8,400,000	$8,625,336	$123,444,426	$225,336
						5	$123,444,425.86	$8,400,000	$8,641,110	$123,685,536	$241,110
	Maturity value of bonds	$140,000,000			31-Dec-23	6	$123,685,535.67	$8,400,000	$8,657,987	$123,943,523	$257,987
	Present value interest factor for 30th period	0.13137				7	$123,943,523.17	$8,400,000	$8,676,047	$124,219,570	$276,047
	Present value of maturity value	$18,391,800			31-Dec-24	8	$124,219,569.79	$8,400,000	$8,695,370	$124,514,940	$295,370
						9	$124,514,939.68	$8,400,000	$8,716,046	$124,830,985	$316,046
	Price of bond	$122,627,736			31-Dec-25	10	$124,830,985.46	$8,400,000	$8,738,169	$125,169,154	$338,169
						11	$125,169,154.44	$8,400,000	$8,761,841	$125,530,995	$361,841
					31-Dec-26	12	$125,530,995.25	$8,400,000	$8,787,170	$125,918,165	$387,170
Date	Account titles and explanation	Debit	Credit			13	$125,918,164.92	$8,400,000	$8,814,272	$126,332,436	$414,272
01-Jan-21	Cash	$122,627,736			31-Dec-27	14	$126,332,436.46	$8,400,000	$8,843,271	$126,775,707	$443,271
	Discount on issue of bonds	$17,372,264				15	$126,775,707.01	$8,400,000	$8,874,299	$127,250,007	$474,299
	Bonds payable		$140,000,000		31-Dec-28	16	$127,250,006.50	$8,400,000	$8,907,500	$127,757,507	$507,500
	(Bonds issued)					17	$127,757,506.96	$8,400,000	$8,943,025	$128,300,532	$543,025
					31-Dec-29	18	$128,300,532.45	$8,400,000	$8,981,037	$128,881,570	$581,037
30-Jun-21	Interest expense	$8,583,942				19	$128,881,569.72	$8,400,000	$9,021,710	$129,503,280	$621,710
	Discount on issue of bonds		$183,942		31-Dec-30	20	$129,503,279.60	$8,400,000	$9,065,230	$130,168,509	$665,230
	Cash		$8,400,000			21	$130,168,509.17	$8,400,000	$9,111,796	$130,880,305	$711,796
	(interest expense for period 1)				31-Dec-31	22	$130,880,304.81	$8,400,000	$9,161,621	$131,641,926	$761,621
						23	$131,641,926.15	$8,400,000	$9,214,935	$132,456,861	$814,935
31-Dec-28	Interest expense	$8,907,500			31-Dec-32	24	$132,456,860.98	$8,400,000	$9,271,980	$133,328,841	$871,980
	Discount on issue of bonds		$507,500			25	$133,328,841.25	$8,400,000	$9,333,019	$134,261,860	$933,019
	Cash		$8,400,000		31-Dec-33	26	$134,261,860.14	$8,400,000	$9,398,330	$135,260,190	$998,330
	(interest expense for period 1)					27	$135,260,190.35	$8,400,000	$9,468,213	$136,328,404	$1,068,213
					31-Dec-34	28	$136,328,403.67	$8,400,000	$9,542,988	$137,471,392	$1,142,988
						29	$137,471,391.93	$8,400,000	$9,622,997	$138,694,389	$1,222,997
					31-Dec-35	30	$138,694,389.36	$148,400,000	$9,705,611	$0	-$138,694,389