Question

On April 1, 2016, Western Communications, Inc., issued 12% bonds, dated March 1, 2016, with face amount of $40 million. The bonds sold for $39.3 million and mature on February 28, 2019. Interest is paid semiannually on August 31 and February 28. Stillworth Corporation acquired $40,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31, and both firms use the straight-line method.

Required:

1.	Prepare the journal entries to record (a) issuance of the bonds by Western and (b) Stillworth’s investment on April 1, 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollar.)

2.	Prepare the journal entries by both firms to record all subsequent events related to the bonds through maturity. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollar.)

Answer 1

Question is about bond accounting for Issuer and investor wherein rate is 12% for 40m face value bond.