Question

# On January 1, 2021, Bishop Company issued 10% bonds dated January 1, 2021, with a face...

On January 1, 2021, Bishop Company issued 10% bonds dated January 1, 2021, with a face amount of \$19.1 million. The bonds mature in 2030 (10 years). For bonds of similar risk and maturity, the market yield is 12%. 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. Price of the bonds = present value of interest at 6%, 20 years + Present value of maturity amount

= 19100000*10%*6/12*11.46992+19100000*0.31180

= \$16909154

 Date Account Titles and Explanation Debit Credit January 1, 2021 Cash 16909154 Discount on Bonds Payable 2190846 Bonds Payable 19100000 June 30, 2021 Interest expense (16909154*12%*6/12) 1014549 Cash (19100000*10%*6/12) 955000 Discount on Bonds Payable 59549 December 31, 2021 Interest expense (16909154*12%*6/12) 1014549 Cash (19100000*10%*6/12) 955000 Discount on Bonds Payable 59549