Question

On January 1, 2021, JUNE Enterprises issued 10% bonds dated January 1, 2021, with a face amount of $19.0 million. The bonds mature in 2030 (10 years). For bonds of similar risk and maturity, the market yield is 8%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Determine the price of the bonds at January 1, 2021.
2. Prepare the journal entry to record the bond issuance by Mania on January 1, 2021.
3. Prepare the journal entry to record interest on June 30, 2021, using the effective interest method.
4. Prepare the journal entry to record interest on December 31, 2021, using the effective interest method.

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Part 1) Price of bond = (interest payment * present value annuity (20,4%))+(face value /(1.04)^20) = ((19000000*5%)*((1-(1.04)^-20)/.04))+(19000000/(1.04)^20) = (950000*13.59033)+(19000000/2.191123) = $ 21582162 Thus the price of bond = $ 21582162 Part 2) Date Janaury 1, 2021 Debit account Title Cash Premium on bond payable (21582162-19000000) Bond Payable (To recor dissue of bond) Credit 21582162 2582162 19000000

Part 3) Date June 30, 2021 Debit Credit account Title Interest expense (21582162*8%/2) Premium on bond payable (950000-863286) Cash (19000000*10%/2) (to record interest expense) 863286 86714 950000 Part 4) Date December 31, 2021 Debit account Title Interest expense ((21582162-86714)*8%/2) Premium on bond payable (950000-859818) Cash (19000000*10%/2) (to record interest expense) Credit 859818 90182 950000 For any help please comment in the comment box