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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