Question

The Bradford Company issued 8% bonds, dated January 1, with a face amount of $50 million on January 1, 2021 to Saxton-Bose Corporation. The bonds mature on December 31, 2030 (20 years). For bonds of similar risk and maturity, the market yield is 10%. 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 Saxton-Bose on January 1, 2021, interest revenue on June 30, 2021 and interest revenue on December 31, 2021 (at the effective rate). (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Journal entries
date	particulars		debit	credit
01-01-2021	Investment in bond		50000000
	discount on bond investment			8582000
	cash			41418000
	(to record purchased of bond)
30-06-2021	cash (50000000*8%/2)		2000000
	discount on bond investment		70900
	interest revenue(41418000*10%/2)			2070900
	(to record interest income)
31-12-2021	cash		2000000
	discount on bond investment		74445
	interest revenue(41418000+70900)*10%/2			2074445
	(to record interest income)
Calculation of bond current market price
present value of future bond interest			34318000
(50000000*8%/2*17.159)
present value of maturity value			7100000
(50000000*0.142)
current market price of bond			41418000
Annuity factor @ 5% for 40 years = 17.159
present value factor @5% for 40 years = 0.142