Question

On January 1, 2018, Bishop Company issued 8% bonds dated January 1, 2018, with a face amount of $20.1 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

Solution 1:

Chart Values are based on:
n= (10 Years*2)	20	Half years
i= (10%/2)	5%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Par (Maturity) Value	0.37689	*	$2,01,00,000	=	$75,75,479
Interest (Annuity) [$20,100,000*8%*6/12]	12.46221	*	$8,04,000	=	$1,00,19,617
Price of Bonds					$1,75,95,096

Solution 2:

Bishop Company
Journal Entries
Date	Particulars	Debit	Credit
01-Jan	Cash A/c Dr	$1,75,95,096
	Discount on bond Payable Dr	$25,04,904
	To bonds payable		$2,01,00,000
	(Being bond issued at Discount)

Solution 3:

Date	Particulars	Debit	Credit
30-Jun	Interest Expense Dr ($17,595,096*10%*6/12)	$8,79,755
	To Discount on Bond payable		$75,755
	To Cash ($20,100,000*8%*6/12)		$8,04,000
	(To record first Interest Payment and Amortization of discount on issue)

Solution 4:

Date	Particulars	Debit	Credit
31-Dec	Interest Expense Dr [($17,595,096-$75755)*10%*6/12]	$8,75,967
	To Discount on Bond payable		$71,967
	To Cash ($20,100,000*8%*6/12)		$8,04,000
	(To record second Interest Payment and Amortization of Discount on issue)