Question

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Exercise 14-8 (Algo) Investor, straight-line method [LO14-2] Universal Foods issued 10% bonds, dated January 1, with a face amount of $186 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 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.) ook 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.) A View transaction list . Journal entry worksheet 2 3 int Record the investment in bonds on January 1, 2021. ences Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2021 Record entry Clear entry View general journal

Answer 1

Bond issuance price Present value of interest payments + Present value of principal PV value of $1 factor PV value of annuity $1 factor Bonds face value Interest payments 0.17411 (n=30 where as interest paid semi anually for 15 years i.e |(15*2)) interest rate i is 6% (12 13.764832) 150,000,000 $ 150,000,000*10%*6/12 7,500,000 Bond issuance price =Present value of interest payments (7500000) + Present value of principal (150000000) = [(13.76483) * (7,500,000)] + [0.17411 * (150,000,000)] = $ 26,116,500 + $ 103,236,225 $129,352,725

Date Credit General journal 01-01-21 Cash Discounts on bonds payable Bonds payable (To record investment in bonds) Debit $ $ 129,352,725 20,647,275 $ 150.000.000 8,188,243 30-06-21 Interest expense Discounts on bonds payable Cash (To record interest and amortization of discount on bonds) $ $ A+B 688,243 A (Refer working note-1) 7,500,000 B (S 150,000,000*10%*6/12) $ 8,188,243 30-12-28 Interest expense Discounts on bonds payable Cash (To record interest and amortization of discount on bonds) $ $ A+B 688,243 A (Refer working note-1) 7,500,000 B ($ 150,000,000*10%*6/12) 20,647,275 Working note -1 Discounts on bonds payable Amortization of discount on bonds payable Discounts on bonds payable / Bonds interest payments period $ 20,647,275 / 30 688,243