McWherter Instruments sold $410 million of 10% bonds, dated January 1, on Januar
ID: 2546979 • Letter: M
Question
McWherter Instruments sold $410 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 ke : Blanton Technologies, Inc., purchased $410,000 of the bonds as a long-term investment. EV of $1 PV of $1 FVA of SIPVA of $1. EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) nd EVADotso ruchased $4moorny 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). Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Determine the price of the bonds issued on January 1, 2018. (Enter your answer in whole dollars.) Bond priceExplanation / Answer
1)Semiannual Interest: 410,000,000* .10*6/12 =20,500,000
semiannual months :20*2=40
semiannual yield : 12*6/12= 6%
Price : [PVA 6%,40* Interest ]+ [PVF 6%,40*Face value]
= [15.04630*20,500,000] +[ .09722*410,000,000]
= 308,449,150+ 39,860,200
= 348,309,350
Discount on Bond : 410,000,000 - 348,309,350 = 61,690,650
2)
**% of bond purchased410000/410,000,000 = .001 or .1%
3)
4)Carrying value of bond after first semiannual interest : 348,309,350+ 398561 discount amortised = 348707911
Date Account Debit credit jan 1 2018 Cash 348,309,350 Discount on Bond payable 61,690,650 Bond payable 410,000,000 [being bond issued at discount] jan1 2018 Bond Investment 410000 Discount on bond payable 61691 CAsh [348,309,350 *.001] 348,309 [being investment made ]