Question

The Bradford Company issued 6% 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 8%. 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.)

Answer 1

Working 1: Calculating Purchase price (market value) of bond as on 01.01.2018

Date	Cash Inflows	PVIF @ 4% semiannually	PV of Cash Inflows
30-06-2018	15,00,000	0.961538	14,42,308
31-12-2018	15,00,000	0.924556	13,86,834
30-06-2019	15,00,000	0.888996	13,33,495
31-12-2019	15,00,000	0.854804	12,82,206
30-06-2020	15,00,000	0.821927	12,32,891
31-12-2020	15,00,000	0.790315	11,85,472
30-06-2021	15,00,000	0.759918	11,39,877
31-12-2021	15,00,000	0.730690	10,96,035
30-06-2022	15,00,000	0.702587	10,53,880
31-12-2022	5,15,00,000	0.675564	3,47,91,555
		Total	4,59,44,552

Working 2: Bond amortisation schedule

Half year ended on	Opening Value of Bond	Interest Revenue booked	Interest Receipt	Closing Value of Bond
30-06-2018	4,59,44,552	18,37,782	15,00,000	4,62,82,334
31-12-2018	4,62,82,334	18,51,293	15,00,000	4,66,33,628
30-06-2019	4,66,33,628	18,65,345	15,00,000	4,69,98,973
31-12-2019	4,69,98,973	18,79,959	15,00,000	4,73,78,932
30-06-2020	4,73,78,932	18,95,157	15,00,000	4,77,74,089
31-12-2020	4,77,74,089	19,10,964	15,00,000	4,81,85,052
30-06-2021	4,81,85,052	19,27,402	15,00,000	4,86,12,454
31-12-2021	4,86,12,454	19,44,498	15,00,000	4,90,56,953
30-06-2022	4,90,56,953	19,62,278	15,00,000	4,95,19,231
31-12-2022	4,95,19,231	19,80,769	5,15,00,000	-

Journal Entries:

1. Purchase of Bond

01-01-2018	Investment in Bond (Bradfort Company)	Dr	4,59,44,552
	Cash	Cr		4,59,44,552

2. Interest Income on June 30,2018

30-06-2018	Cash	Dr	15,00,000
	Investment in Bond (Bradfort Company)	Dr	3,37,782
	Interest Revenue	Cr		18,37,782

3. Interest Income on December 31,2018

31-12-2018	Cash	Dr	15,00,000
	Investment in Bond (Bradfort Company)		3,51,293
	Interest Revenue	Cr		18,51,293