Question

# On January 1, 2018, Bishop Company issued 8% bonds dated January 1, 2018, with a face...

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.

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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