Question

On January 1, 2021, Bishop Company issued 10% bonds dated January 1, 2021, with a face amount of $19.9 million. The bonds mature in 2030 (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, 2021.
2. Prepare the journal entry to record the bond issuance by Bishop 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

Req1 Face Value of Bonds PV factor (12%/2, 10 years x2) Present Value of Face Value $ 1,99,00,000 0.3118 $ 62,04,820 (a) Interest @ 5% semi annual PV annuity factor (5%, 20x2) Present Value of Interest $ 9,95,000 11.46992 $ 1,14,12,570 (b) Issue Price of Bond (Jan 1, 2021) (a+b) $ 1,76,17,390 Cash Int Bond Discount Discount Carrying Period End paid Interest Exp amortization Balance Value 01-01-2021 $ 22,82,610 $1,76,17,390 30-06-2021 $9,95,000 $10,57,043 $ 62,043 $ 22,20,566 $1,76,79,434 31-12-2021 $9,95,000 $10,60,766 $ 65,766 $ 21,54,800 $1,77,45,200 Credit Req 2 Journal Entries in the books of Bishop Company Date General Journal Debit 01-01-2021 Cash $ 1,76,17,390 Discount on Issue of Bonds $ 22,82,610 Bonds Payable (To record issue of bonds at discount) $1,99,00,000 Credit Debit $ 10,57,043 Req3 Date General Journal 30-06-2021 Interest Discount on Issue of Bonds Cash (To record interest expense) $ 62,043 $ 9,95,000 Credit Debit $ 10,60,766 Req4 Date General Journal 31-12-2021 Interest Discount on Issue of Bonds Cash (To record interest expense) $ 65,766 $ 9,95,000

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