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