On January 1, 2011, Bishop Company issued 10% bonds dated January 1, 2011, with a face amount of $20 million. The bonds mature in 2020 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31.
REQUIRED:
A. Determine the price of the bonds at January1, 2011.
B. Prepare the journal entry to record the bond issuance by Bishop on January 1, 2011.
C.Prepare the journal entry to record interest on June 30, 2011, using the effective interest method.
D. Prepare the journal entry to record interest on December 31,2011, using the effective interest method
Solution
Answer A. Price of bond
A=20*10%/2
i=12%/2=.6
n=10*2=20
FV = 20 million
=1*(1-(1+.6)-20/0.6+20/(1+.6)*20 = 17.71 Million
B. Cash.....................................................Dr.$177,06,016
Unmortized discount on bond Issue.........Dr $22,93,984
Bonds Payable.....................Cr $200,000,00
C. Interest Expense .....................................Dr $11,14,699
Cash ............................................................Cr $10,00,000
Unmortized discount on bond issue..................Cr.$1,14,699
.
Separation of Lanthanides/ Lanthanides and Actinides
On January 1- 2011- Bishop Company issued 10- bonds dated January 1- 2.docx
1. On January 1, 2011, Bishop Company issued 10% bonds dated January 1, 2011, with a face
amount of $20 million. The bonds mature in 2020 (10 years). For bonds of similar risk and
maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31.
REQUIRED:
A. Determine the price of the bonds at January1, 2011.
B. Prepare the journal entry to record the bond issuance by Bishop on January 1, 2011.
C.Prepare the journal entry to record interest on June 30, 2011, using the effective interest
method.
D. Prepare the journal entry to record interest on December 31,2011, using the effective interest
method
Solution
Answer A. Price of bond
A=20*10%/2
i=12%/2=.6
n=10*2=20
FV = 20 million
=1*(1-(1+.6)-20/0.6+20/(1+.6)*20 = 17.71 Million
B. Cash.....................................................Dr.$177,06,016
Unmortized discount on bond Issue.........Dr $22,93,984
Bonds Payable.....................Cr $200,000,00
2. C. Interest Expense .....................................Dr $11,14,699
Cash ............................................................Cr $10,00,000
Unmortized discount on bond issue..................Cr.$1,14,699
