Question

In: Accounting

The Bradford Company issued 8% bonds, dated January 1, with a face amount of $75 million...

The Bradford Company issued 8% bonds, dated January 1, with a face amount of $75 million on January 1, 2018 to Saxton-Bose Corporation. The bonds mature on December 31, 2037 (20 years). For bonds of similar risk and maturity, the market yield is 10%. 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. to 3. Prepare the journal entry to record the purchase of the bonds by Saxton-Bose on January 1, 2018, interest revenue on June 30, 2018 and interest revenue on December 31, 2018 (at the effective rate). (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Solutions

Expert Solution

Solution 1 to 3:

Computation of bond price
Table values are based on:
n= 40
i= 5.00%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.14205 $75,000,000.00 $10,653,426
Interest (Annuity) 17.15909 $3,000,000.00 $51,477,259
Price of bonds $62,130,685
Journal Entries - Saxton - Bose Corporation
Event Date Particulars Debit Credit
1 1-Jan-18 Investment in Bond Dr $75,000,000
         To Cash $62,130,685
         To Discount on bond investment $12,869,315
(Being investment in bond recorded)
2 30-Jun-18 Cash Dr ($75,000,000 * 8% * 6/12) $3,000,000
Discount on bond investment Dr $106,534
         To Interest revenue ($62,130,685*10%*6/12) $3,106,534
(Being revenue recognition for bond interest and discount amortized)
3 31-Dec-18 Cash Dr ($75,000,000 * 8% * 6/12) $3,000,000
Discount on bond investment Dr $111,861
         To Interest revenue [($62,130,685 + $106,534)*10%*6/12] $3,111,861
(Being revenue recognition for bond interest and discount amortized)

Related Solutions

The Bradford Company issued 8% bonds, dated January 1, with a face amount of $75 million...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $75 million on January 1, 2018 to Saxton-Bose Corporation. The bonds mature on December 31, 2022 (5 years). For bonds of similar risk and maturity, the market yield is 10%. 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.):...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $100 million...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $100 million on January 1, 2018 to Saxton-Bose Corporation. The bonds mature on December 31, 2037 (20 years). For bonds of similar risk and maturity, the market yield is 10%. 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.):...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $50 million...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $50 million on January 1, 2021 to Saxton-Bose Corporation. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 10%. 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.)...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $50 million...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $50 million on January 1, 2018 to Saxton-Bose Corporation. The bonds mature on December 31, 2022 (5 years). For bonds of similar risk and maturity, the market yield is 10%. 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.):...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $70 million...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $70 million on January 1, 2018 to Saxton-Bose Corporation. The bonds mature on December 31, 2032 (15 years). For bonds of similar risk and maturity, the market yield is 10%. 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.):...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $70 million...
The Bradford Company issued 8% bonds, dated January 1, with a face amount of $70 million on January 1, 2018 to Saxton-Bose Corporation. The bonds mature on December 31, 2032 (15 years). For bonds of similar risk and maturity, the market yield is 10%. 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.):...
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $80 million...
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $80 million on January 1, 2021 to Saxton-Bose Corporation. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 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) Required: 1. to 3. Prepare the journal...
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $80 million...
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $80 million on January 1, 2021 to Saxton-Bose Corporation. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 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) Required: 1. to 3. Prepare the journal...
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $50 million...
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $50 million on January 1, 2018 to Saxton-Bose Corporation. The bonds mature on December 31, 2027 (10 years). For bonds of similar risk and maturity, the market yield is 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.):...
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $100 million...
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $100 million on January 1, 2021. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 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) Required: 1. Determine the price of the bonds at January...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT