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On January 1, 2018, Bishop Company issued 10% bonds dated January 1, 2018, with a face...

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Accounting

On January 1, 2018, Bishop Company issued 10% bonds datedJanuary 1, 2018, with a face amount of $19.6 million. The bondsmature in 2027 (10 years). For bonds of similar risk and maturity,the market yield is 12%. Interest is paid semiannually on June 30and 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 tablesprovided. Round your intermediate calculations to the nearest wholedollar.) Required: 1. Determine the price of the bonds at January1, 2018. 2. Prepare the journal entry to record the bond issuanceby Bishop on January 1, 2018. 3. Prepare the journal entry torecord interest on June 30, 2018, using the effective interestmethod. 4. Prepare the journal entry to record interest on December31, 2018, using the effective interest method.

Answer & Explanation Solved by verified expert
4.5 Ratings (943 Votes)

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)

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