On April 1, 2018, Western Communications, Inc., issued 12% bonds, dated March 1, 2018, with face amount of $44 million. The bonds sold for $43.3 million and mature on February 28, 2021. Interest is paid semiannually on August 31 and February 28. Stillworth Corporation acquired $44,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31, and both firms use the straight-line method. Prepare the journal entries to record (a) issuance of the bonds by Western and (b) Stillworth's Investment on April 1, 2018

cash 43,300,000 debit

discount on BP 1, 140,000 debit

bonds payable 44,000,000 credit

interest payable 440,000 credit

- - to record issuance of BP - -

investment on bonds 44,000 debit

cash 43,050 credit

discount on bonds 950 credit

- - to record purchase of bonds - -

Explanation:

Face amount: 44,000,000

interest payable 440,000

issued at 43,300,000

discount 1,140,000

accrued interest: 44,000,000 x 12% / 12 = 440,000

The company issued the bonds for less than his face value. The bonds have a discount.

carrying value of the bonds at August 31th

1,140,000 / 6 = 190,000 amortization

1,140,000 - 190,000 = 950,000

Carrying value 44,000,000 - 950,000 = 43,050,000

Investment: 44,000 in bonds

the bonds will also have a discount so it were purchase at 43,050

44,000,000 - -> 43,050,000

44,000 - -> 43,050