Question

McWherter Instruments sold $350 million of 6% bonds, dated January 1, on January 1, 2021. The bonds mature on December 31, 2040 (20 years). For bonds of similar risk and maturity, the market yield was 8%. Interest is paid semiannually on June 30 and December 31. Blanton Technologies, Inc., purchased $350,000 of the bonds as a long-term investment. (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. Determine the price of the bonds issued on January 1, 2021.
2. Prepare the journal entries to record (a) their issuance by McWherter and (b) Blanton's investment on January 1, 2021.
3. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on June 30, 2021 (at the effective rate).
4. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on December 31, 2021 (at the effective rate).

Answer 1

Since factor tables are not provided, I am rounding off the factors to 5 decimal places (This may cause a rounding off difference, please comment if it is the case)

1.

Price of Bonds = Present value of Interest + Present Value of Maturity amount

Payment	Amount	PV Factor	Present Value
1	$ 10,500,000	0.96154	$ 10,096,170
2	$ 10,500,000	0.92456	$ 9,707,880
3	$ 10,500,000	0.889	$ 9,334,500
4	$ 10,500,000	0.8548	$ 8,975,400
5	$ 10,500,000	0.82193	$ 8,630,265
6	$ 10,500,000	0.79031	$ 8,298,255
7	$ 10,500,000	0.75992	$ 7,979,160
8	$ 10,500,000	0.73069	$ 7,672,245
9	$ 10,500,000	0.70259	$ 7,377,195
10	$ 10,500,000	0.67556	$ 7,093,380
11	$ 10,500,000	0.64958	$ 6,820,590
12	$ 10,500,000	0.6246	$ 6,558,300
13	$ 10,500,000	0.60057	$ 6,305,985
14	$ 10,500,000	0.57748	$ 6,063,540
15	$ 10,500,000	0.55526	$ 5,830,230
16	$ 10,500,000	0.53391	$ 5,606,055
17	$ 10,500,000	0.51337	$ 5,390,385
18	$ 10,500,000	0.49363	$ 5,183,115
19	$ 10,500,000	0.47464	$ 4,983,720
20	$ 10,500,000	0.45639	$ 4,792,095
21	$ 10,500,000	0.43883	$ 4,607,715
22	$ 10,500,000	0.42196	$ 4,430,580
23	$ 10,500,000	0.40573	$ 4,260,165
24	$ 10,500,000	0.39012	$ 4,096,260
25	$ 10,500,000	0.37512	$ 3,938,760
26	$ 10,500,000	0.36069	$ 3,787,245
27	$ 10,500,000	0.34682	$ 3,641,610
28	$ 10,500,000	0.33348	$ 3,501,540
29	$ 10,500,000	0.32065	$ 3,366,825
30	$ 10,500,000	0.30832	$ 3,237,360
31	$ 10,500,000	0.29646	$ 3,112,830
32	$ 10,500,000	0.28506	$ 2,993,130
33	$ 10,500,000	0.27409	$ 2,877,945
34	$ 10,500,000	0.26355	$ 2,767,275
35	$ 10,500,000	0.25342	$ 2,660,910
36	$ 10,500,000	0.24367	$ 2,558,535
37	$ 10,500,000	0.2343	$ 2,460,150
38	$ 10,500,000	0.22529	$ 2,365,545
39	$ 10,500,000	0.21662	$ 2,274,510
40	$ 10,500,000	0.20829	$ 2,187,045
40	$ 350,000,000	0.20829	$ 72,901,500
			$ 280,725,900

2.

a.

Date	Account Titles and Explanation	Debit	Credit
Jan 1, 2021	Cash	280,725,900
	Discount on Bonds	69,274,100
	Bonds Payable		350,000,000
	(Being bonds issued)

b.

Date	Account Titles and Explanation	Debit	Credit
Jan 1, 2021	Investment in Bonds	350,000
	Discount on Bond Investment		69,274
	Cash		280,726
	(Being bonds purchased)

3.

a

Date	Account Titles and Explanation	Debit	Credit
Jun 30, 2021	Interest Expense	11,229,036
	Discount on Bonds		729,036
	Cash		10,500,000

b

Date	Account Titles and Explanation	Debit	Credit
Jun 30, 2021	Cash	10,500
	Discount on Bond Investment	729
	Interest Revenue		11,229

4

a

Date	Account Titles and Explanation	Debit	Credit
Dec 31, 2021	Interest Expense	11,258,197
	Discount on Bonds		758,197
	Cash		10,500,000

b

Date	Account Titles and Explanation	Debit	Credit
Dec 31, 2021	Cash	10,500
	Discount on Bond Investment	758
	Interest Revenue		11,258