Universal Foods issued 10% bonds, dated January 1, with a face amount of $172 million on January 1, 2021 to Wang Communications. • The bonds mature on December 31, 2038 (15 years). . The market rate of interest for similar issues was 12%.. • Interest is paid semiannually on June 30 and December 31. Universal uses the straight-line method. .

Universal Foods issued 10% bonds, dated January 1, with a face amount of $172 million on January 1, 2021 to Wang Communications. • The bonds mature on December 31, 2038 (15 years). . The market rate of interest for similar issues was 12%.. • Interest is paid semiannually on June 30 and December 31. Universal uses the straight-line method. .

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

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Universal Foods issued 10% bonds, dated January 1, with a face amount of $172 million on January 1, 2021 to Wang Communications.
The bonds mature on December 31, 2038 (15 years).
The market rate of interest for similar issues was 12%..
●
●
• Interest is paid semiannually on June 30 and December 31.
• Universal uses the straight-line method.
Required:
1. to 3. Prepare the journal entries to record the purchase of the bonds by Wang Communications on January 1, 2024, interest revenue
on June 30, 2024 and interest revenue on December 31, 2031.
Note: Round your final answers to the nearest whole dollars. If no entry is required for a transaction/event, select "No journal
entry required" in the first account field. Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of
$1 and PVAD of $1)
View transaction list
Journal entry worksheet
<
1
2
3
Record the investment in bonds on January 1, 2024.
Note: Enter debits before credits.
Date
January 01, 2024
General Journal
Debit
Credit

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Step 2: (1) Prepare the journal entry to record the purchase of the bonds by Wang Communications on Jan 1:

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Step 3: (2) Prepare the journal entry to record interest revenue on June 30, 2024:

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Step 4: (3) Prepare the journal entry to record interest revenue on Dec 31, 2031:

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