Question

# On January 1, 2021, Bishop Company issued 8% bonds dated January 1, 2021, with a face...

On January 1, 2021, Bishop Company issued 8% bonds dated January 1, 2021, with a face amount of \$20.7 million. The bonds mature in 2030 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. (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. Round your intermediate calculations to the nearest whole dollar.)

Required:
1. Determine the price of the bonds at January 1, 2021.
2. Prepare the journal entry to record the bond issuance by Bishop on January 1, 2021.
3. Prepare the journal entry to record interest on June 30, 2021, using the effective interest method.
4. Prepare the journal entry to record interest on December 31, 2021, using the effective interest method.

1. Bonds price = Interest payment*PVIAF(5%, 20 years) + maturity amount*PVIF(5%, 20 years)

= \$20700000*8%*6/12*12.462+20700000*0.377 = \$18122436

2.

 Date Accounts Debit Credit January 1, 2021 Cash \$18122436 Discount on Bonds Payable \$2577564 Bonds Payable \$20700000 June 30, 2021 Interest expense (18122436*10%*6/12) \$906122 Discount on Bonds Payable \$78122 Cash (20700000*8%*6/12) \$828000 December 31, 2021 Interest expense (18122436+78122)*10%*6/12) \$910028 Discount on Bonds Payable \$82028 Cash (20700000*8%*6/12) \$828000

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