Question

On January 1, 2018, Bishop Company issued 8% bonds dated January
1, 2018, with a face amount of $21.0 million. The bonds mature in
2027 (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,
2018.

**2.** Prepare the journal entry to record the bond
issuance by Bishop on January 1, 2018.

**3.** Prepare the journal entry to record interest on
June 30, 2018, using the effective interest method.

**4.** Prepare the journal entry to record interest on
December 31, 2018, using the effective interest method.

Answer #1

Issue price of bonds = (21000000*4%*12.46221)+(21000000*0.37689) = $18382946

Journal entry

Date | account and explanation | debit | credit |

Jan 1 | Cash | 18382946 | |

Discount on bonds payable | 2617054 | ||

Bonds payable | 21000000 | ||

(To record bond issue) | |||

June 30 | Interest expense (18382946*5%) | 919147 | |

Discount on bonds payable | 79147 | ||

Cash (21000000*8%*6/12) | 840000 | ||

(To record interest) | |||

Dec 31 | Interest expense (18382946+79147)*5% | 923105 | |

Discount on bonds payable | 83105 | ||

Cash | 840000 | ||

(To record interest) |

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