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On January 1, 2018, Wildcat Company spent $80,695.66 to purchase bonds with face value of 100,000....

On January 1, 2018, Wildcat Company spent $80,695.66 to purchase bonds with face value of 100,000. The stated rate on the bonds are 7%. The bonds are to be held to maturity. The bonds pay interest semiannually on June 30 and December 31. These bonds will mature in 5 years since the date of purchase.

                        

Required:

  1. Prepare the appropriate journal entry to record the acquisition of the bonds.
  2. What is the annual YTM?

(3.)  Record the first two interest payments.

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Answer #1
Answer

Date

 Particulars Debit Credit
January 1, 2018 Investment in bonds $   1,00,000
           Cash $ 1,00,000
July 1, 2018 Cash $        3,500 100000*7*%*6/12
        Interest Revenue $       3,500
January 1, 2019 Cash $        4,650 100000*7*%*6/12
        Interest Revenue $       4,650
YTM
Annual coupon $             7,000
Face value $       1,00,000
Price $     80,695.66
year of maturity 5
YTM= 12.41% 1,00,000+1,00,000-80,695.66/5
100,000-80,695.66/2
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