McWherter Instruments sold $500 million of 8% bonds, dated January 1, on January
ID: 2531046 • Letter: M
Question
McWherter Instruments sold $500 million of 8% 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 10%. Interest is paid semiannually on June 30 and December 31. Blanton Technologies, Inc., purchased $500,000 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
Price of Bond issued on 01/01/2018:
All Figures in $ million
Bond Amortisation Schedule:
Answer 2
a.Bond Issuance by McWherter
b. Blaton's Investment on 01-01-2018
Answer 3
a. Interest Expense & discount amortiation - McWherter
b. Interest Income by Blaton
Answer 4
a. Interest Expense by McWherter
Interest Income by Blaton
Year Cash Outflow Nature PVIF/PVIFA @ 5% semiannualy PV of Cash Outflow 1-20 20 Interest Payment 17.1591 343.18 20 500 Face Value Redemption 0.1420 71.02 Total 414.20