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

Question

The Bradford Company issued 8% bonds, dated January 1, with a face amount of $75 million on January 1, 2016 to Saxton-Bose Corporation. The bonds mature on December 31, 2,020 (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.):

Prepare the journal entry to record the purchase of the bonds by Saxton-Bose on January 1, 2016, interest revenue on June 30, 2016 and interest revenue on December 31, 2016 (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.)

1.

Record the purchase of the bonds by Saxton-Bose.

2.

Record the interest revenue on June 30,2016.

3.

Record the interest revenue on December 31, 2016.

(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.):

Explanation / Answer

PRESENT VALUE OF INTEREST AMOUNT ($6000000 * PVIFA5%,10 PERIODS)

= $3000000 * 7.7217

= $23165100

PRESENT VALUE OF PRINCIPAL AT MATURITY ($75000000 * PVIF 5%, 10 PERIODS)

= $75000000 * 0.6139

= $46042500

TOTAL VALUE OF BOND = $23165100 + $46042500

= $69207600

------------------------------------------------------------------------------------------------------------------------------------------------------------------

CASH ($75000000 * 4%) = $3000000

INTEREST REVENUE ($69207600 * 5%) = $3460380

--------------------------------------------------------------------------------------------------------------------------------------------------------------------

CASH ($75000000 * 4%) = $3000000

INTEREST REVENUE ($69207600 +$460380 * 5%) = $3483399

DATE ACCOUNT TITLE DEBIT $ CREDIT $ JAN 1 2016 BOND INVESTMENT $75000000 DISCOUNT ON BOND INVESTMENT $5792400 CASH $69207600 JUNE 30 , 2016 CASH $3000000 DISCOUNT ON BOND INVESTMENT $460380 INTEREST REVENUE $3460380 DEC 31 ,2016 CASH $3000000 DISCOUNT ON BOND INVESTMENT $483399 INTEREST REVENUE $3483399

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