Question

On January 1, 2016, Bishop Company issued 8% bonds dated January 1, 2016, with a face amount of $20.6 million. The bonds mature in 2025 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. 1. Determine the price of the bonds at January 1, 2016 2.Prepare the journal entry to record the bond issuance by Bishop on January 1, 2016 3.Prepare the journal entry to record interest on June 30, 2016, using the effective interest method. 4.Prepare the journal entry to record interest on December 31, 2016, using the effective interest method.

Answer 1

Issue price of bonds = (20600000*4%*12.46221)+(20600000*0.37689) = 18032795

Journal entry :

Date	account and explanation	debit	credit
Jan 1	Cash	18032795
	Discount on bonds payable	2567205
	Bonds payable		20600000
	(TO record bond issue)
June 30	Interest expense (18032795*5%)	901640
	Discount on bonds payable		77640
	Cash (20600000*4%)		824000
	(To record interest)
Dec 31	Interest expense	905522
	Discount on bonds payable		81522
	Cash		824000
	(To record interest)