Question

Exercise 14-8 Investor, straight-line method (LO14-2) Universal Foods issued 12% bonds, dated January 1, with a face amount of $175 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 semn ally 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 S1 and PVAD of $ (Use appropriate factors) 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 1

Solution 1-3:

Computation of bond price
Table values are based on:
n=	30
i=	7.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.13137	$175,000,000.00	$22,989,750
Interest (Annuity)	12.40904	$10,500,000.00	$130,294,920
Price of bonds			$153,284,670

Journal Entries - Wang Communications
Event	Date	Particulars	Debit	Credit
1	1-Jan-18	Investment in Bond Dr	$175,000,000.00
		To Cash		$153,284,670.00
		To Discount on bond investment		$21,715,330.00
		(Being investment in bond recorded)
2	30-Jun-18	Cash Dr ($175,000,000 *12% * 6/12)	$10,500,000.00
		Discount on bond investment Dr ($21,715,330 / 30)	$723,844.00
		To Interest revenue		$11,223,844.00
		(Being revenue recoginition for bond interest and discount amortized)
3	31-Dec-25	Cash Dr ($175,000,000 *12% * 6/12)	$0.00
		Discount on bond investment Dr ($21,715,330 / 30)	$723,844.00
		To Interest revenue		$723,844.00
		(Being revenue recoginition for bond interest and discount amortized)