Question

On April 1, 2021, Western Communications, Inc., issued 12% bonds, dated March 1, 2021, with face amount of $49 million. The bonds sold for $48.3 million and mature on February 28, 2024. Interest is paid semiannually on August 31 and February 28. Stillworth Corporation acquired $49,000 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, 2021. 2. Prepare the journal entries by both firms to record all subsequent events related to the bonds

maturity.

Answer 1

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Required (a)	Journal Entry in the books of Western for issuance of bond
Date	Account title and explanation	Debit $	Credit $
April 1, 2021	Cash	48,300,000
	Discount on issue of bonds	700,000
	12% Bond Payable		49,000,000
	(To record the issue of 12% bond)
Required (b)	Journal Entry in the books of Stillworth for purchase of bond
Date	Account title and explanation	Debit $	Credit $
April 1, 2021	Long term investment	48,300
	Cash		48,300
	(To record the purchase of bond for long term investment)
	Journal Entry in the books of Western for interest payment and accrual of interest
Date	Account title and explanation	Debit $	Credit $
August 31, 2021	Interest Expenses	2,550,000
	Cash		2,450,000
	Discount on issue of bonds		100,000
	(To record the interest expenses)
December 31, 2021	Interest Expenses	3,060,000
	Accrued Interest		2,940,000
	Discount on issue of bonds		120,000
	(To record the accrued interest expenses)
	Journal Entry in the books of Stillworth for interest income
Date	Account title and explanation	Debit $	Credit $
August 31, 2021	Cash	2,450,000
	Interest Income		2,450,000
	(To record the interest income)
December 31, 2021	Interest Receivable	2,940,000
	Interest Income		2,940,000
	(To record the interest income)