Question

Universal Foods issued 10% bonds, dated January 1, with a face amount of $154 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.)

Required: 1. Prepare the journal entries to record the purchase of the bonds by Wang Communications on January 1, 2021

Answer #1

Date |
Account Titles and Explanation |
Debit |
Credit |

Jan 01, 2021 | Investment in Bonds | 154,000,000 | |

Discount on Investment in Bonds | 21,197,869 | ||

Cash | 132,802,131 | ||

Working | |||

Face Value | |||

$154,000,000 x PV of $1 6%, 30 | |||

$154,000,000 x 0.17411 | $26,812,940 | ||

Interest | |||

$7,700,000 x PVA of $1 6%, 30 | $105,989,191 | ||

$7,700,000 x 13.76483 | |||

$132,802,131 |
|||

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