Question

On January 1, 2018, Bishop Company issued 10% bonds dated January 1, 2018, with a face amount of $19.6 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 12%. 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

1)	Sale proceeds from the bond = 19600000/1.06^20+980000*(1.06^20-1)/(0.06*1.06^20) =	$   1,73,51,895
2)
Jan 1, 2018	Cash	$   1,73,51,895
	Discount on bonds payable	$      22,48,105
	Bonds payable		$    1,96,00,000
	(To record sale of bonds)
3)
June 30, 2018	Interest expense (17351895*6%)	$      10,41,114
	Discount on bonds payable		$              61,114
	Cash (19600000*5%)		$          9,80,000
	(To record payment of interest)
4)
December 31, 2018	Interest expense (17351895+61114)*6%	$      10,44,781
	Discount on bonds payable		$              64,781
	Cash (19600000*5%)		$          9,80,000
	(To record payment of interest)