The Bradford Company issued 6% bonds, dated January 1, with a face amount of $50
ID: 2545694 • Letter: T
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.)
Explanation / Answer
Working 1: Calculating Purchase price (market value) of bond as on 01.01.2018
Working 2: Bond amortisation schedule
Journal Entries:
1. Purchase of Bond
2. Interest Income on June 30,2018
3. Interest Income on December 31,2018
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 4,59,44,552Related Questions
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