McWherter Instruments sold $610 million of 10% bonds, dated January 1, on Januar
ID: 2528868 • Letter: M
Question
McWherter Instruments sold $610 million of 10% bonds, dated January 1, on January 1, 2018. The bonds mature on December 31, 2037 (20 years). For bonds of similar risk and maturity, the market yield was 12%. Interest is paid semiannually on June 30 and December 31. Blanton Technologies, Inc., purchased $610,000 of the bonds as a long-term investment. (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. Determine the price of the bonds issued on January 1, 2018. 2. Prepare the journal entries to record (a) their issuance by McWherter and (b) Blanton's investment on January 1, 2018. 3. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on June 30, 2018 (at the effective rate) 4. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on December 31, 2018 (at the effective rate)Explanation / Answer
I)Semiannual Interest = 610 *.10 *6/12 = 30.5
Semiannual months = 20 *2 =40
semiannual yied = 12 *6/12 = 6%
Issue price = [PVA 6%,40*interest ] +[PVF 6%,40*face value]
= [15.04630*30.5million] + [.09722*610million]
= 458912150+ 59292000
= 518,204,150
2)In books of Mc wherter
**carrying value after first semiannual interest = 518204150+592249=518796399
In books of Blanton:
% of holding = 610000/610000000 = .001 or .1%
Date Account Debit credit jan 1 2018 Cash 518,204,150 Discount on bond payable 91,795,850 Bond payable 610,000,000 30 june 2018 Interest expense [518204150*.12*6/12] 31,092,249 Discount on bond payable 592249 cash [610,000,000*.10*6/12] 30,500,000 31 dec 2018 Interest expense [ 518796399*.12*612] 31127783.94 Discount on bond payable 627783.94 cash 30,500,000