On January 1 2018 Bishop Company issued 8 bonds dated Januar

On January 1, 2018, Bishop Company issued 8% bonds dated January 1, 2018, with a face amount of $20.2 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 10%. 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.

Solution 1:

Face value of bond = $20.2 million

Coupon rate = 8%

Period = 10 year, 20 semi annual period

Yield = 10%, 5% semi annual

Bond price = Present value of future cash flows discounted at yield rate

= (20200000*4%) * cumulative PV factor @ 5% for 20 periods + 20200000* PV factor at 5% at 20 period

= $808,000 * 12.46221034 + $20,200,000*0.376889 = $17,682,634

Solution 2-4:

Bond Schedule - Effective Interest method
Period	Opening Balance	Interest expense	Interest Paid	Closing Balance
1	$17,682,634	$884,132	$808,000	$17,758,766
2	$17,758,766	$887,938	$808,000	$17,838,704
3	$17,838,704	$891,935	$808,000	$17,922,639
4	$17,922,639	$896,132	$808,000	$18,010,771
5	$18,010,771	$900,539	$808,000	$18,103,310
6	$18,103,310	$905,165	$808,000	$18,200,475
7	$18,200,475	$910,024	$808,000	$18,302,499
8	$18,302,499	$915,125	$808,000	$18,409,624
9	$18,409,624	$920,481	$808,000	$18,522,105
10	$18,522,105	$926,105	$808,000	$18,640,210
11	$18,640,210	$932,011	$808,000	$18,764,221
12	$18,764,221	$938,211	$808,000	$18,894,432
13	$18,894,432	$944,722	$808,000	$19,031,153
14	$19,031,153	$951,558	$808,000	$19,174,711
15	$19,174,711	$958,736	$808,000	$19,325,447
16	$19,325,447	$966,272	$808,000	$19,483,719
17	$19,483,719	$974,186	$808,000	$19,649,905
18	$19,649,905	$982,495	$808,000	$19,824,400
19	$19,824,400	$991,220	$808,000	$20,007,620
20	$20,007,620	$1,000,381	$808,000	$20,200,001

On January 1, 2018, Bishop Company issued 8% bonds dated January 1, 2018, with a face amount of $20.2 million. The bonds mature in 2027 (10 years). For bonds of

On January 1 2018 Bishop Company issued 8 bonds dated Januar

Solution

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