Question

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.):

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

Solution:

Computation of bond price
Table values are based on:
n=	30
i=	5.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.23138	$70,000,000.00	$16,196,421
Interest (Annuity)	15.37245	$2,800,000.00	$43,042,863
Price of bonds			$59,239,284

Journal Entries - Saxton - Bose Corporation
Event	Date	Particulars	Debit	Credit
1	1-Jan-18	Investment in Bond Dr	$70,000,000
		To Cash		$59,239,284
		To Discount on bond investment		$10,760,716
		(Being investment in bond recorded)
2	30-Jun-18	Cash Dr ($70,000,000 * 8% * 6/12)	$2,800,000
		Discount on bond investment Dr	$161,964
		To Interest revenue ($59,239,284*10%*6/12)		$2,961,964
		(Being revenue recoginition for bond interest and discount amortized)
3	31-Dec-18	Cash Dr ($70,000,000 * 8% * 6/12)	$2,800,000
		Discount on bond investment Dr	$170,062
		To Interest revenue ($59,401,248*10%*6/12)		$2,970,062
		(Being revenue recoginition for bond interest and discount amortized)