Question

# On January 1, 2016, Bishop Company issued 8% bonds dated January 1, 2016, with a face...

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.

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)

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