Question

Universal Foods issued 12% bonds, dated January 1, with a face amount of $155 million on January 1, 2018 to Wang Communications. The bonds mature on December 31, 2032 (15 years). The market rate of interest for similar issues was 14%. Interest is paid semiannually on June 30 and December 31. Universal uses the straight-line method. Universal Foods sold the entire bond issue to Wang Communications. (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:
1-3. Prepare the journal entry to record the purchase of the bonds by Wang Communications on January 1, 2018, interest revenue on June 30, 2018 and interest revenue on December 31, 2025. (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.)

Answer is not complete.

No	Date	General Journal	Debit	Credit
1	January 01, 2018	not attempted	155,000,000selected answer correct	not attempted
2	June 30, 2018	Cashselected answer correct	not attempted	not attempted
		Discount on bond investmentselected answer correct	not attempted	not attempted
		Interest revenueselected answer correct	not attempted	not attempted
3	December 31, 2025	Cashselected answer correct	not attempted	not attempted
		Discount on bond investmentselected answer correct	not attempted	not attempted
		Interest revenueselected answer correct	not attempted	not attempted

Answer 1

Solution:

It is assumed that Wang Communications also used staright line method for discount amortization.

Computation of bond price
Table values are based on:
n=	30
i=	7%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.13137	$155,000,000.00	$20,361,903
Interest (Annuity)	12.40904	$9,300,000.00	$115,404,083
Price of bonds			$135,765,986

Journal Entries
Date	Particulars	Debit	Credit
1-Jan-18	Investment in Bond Dr	$155,000,000.00
	To Cash		$135,765,986.00
	To Discount on bond		$19,234,014.00
	(To record investment in bond)
30-Jun-18	Cash Dr	$9,300,000.00
	Discount on bond investment Dr	$641,134.00
	To Interest Revenue		$9,941,134.00
	(To record interest revenue and discount amortization)
31-Dec-25	Cash Dr	$9,300,000.00
	Discount on bond investment Dr	$641,134.00
	To Interest Revenue		$9,941,134.00
	(To record interest revenue and discount amortization)