Question

The Bradford Company issued 10% bonds, dated January 1, with a face amount of $75 million on January 1, 2021 to Saxton-Bose Corporation. The bonds mature on December 31, 2030 (6 years). For bonds of similar risk and maturity, the market yield is 12%. 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

Solution 1 to 3:

Chart Values are based on:
n= (6 Years*2)	12	Half years
i= (12%/2)	6%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Par (Maturity) Value	0.49697	*	$7,50,00,000	=	$3,72,72,750
Interest (Annuity) [$75,000,000*10%*6/12]	8.38384	*	$37,50,000	=	$3,14,39,400
Price of bonds					$6,87,12,150

Journal Entries - Saxton- bose
Event	Date	Particulars	Debit	Credit
1	01-Jan-21	Investment in Bond Dr	$7,50,00,000
		To Cash		$6,87,12,150
		To Discount on bond investment		$62,87,850
		(Being investment in bond recorded)
2	30-Jun-21	Cash Dr ($75,000,000* 10% * 6/12)	$37,50,000
		Discount on bond investment Dr	$3,72,729
		To Interest revenue ($68712150*12%*6/12)		$41,22,729
		(Being revenue recoginition for bond interest and discount amortized)
3	31-Dec-21	Cash Dr ($75,000,000* 10% * 6/12)	$37,50,000
		Discount on bond investment Dr	$3,95,093
		To Interest revenue [($68712150+ $372729)*12%*6/12]		$41,45,093
		(Being revenue recoginition for bond interest and discount amortized)