Question

on january 1, 2021, corporation issued 10% bonds dated january 1, 2021, with a face amount of $20 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. required: determine the price of the bonds at january 1, 2021. prepare the journal entry to record the bond issuance by the company on january 1, 2021. prepare the journal entry to record interest on june 30, 2021, using the effective interest method. prepare the journal entry to record interest on december 31, 2021, using the effective interest method.

Answer 1

The price of the bonds on January 1, 2021, is approximately $10.247 million.

Journal entry to record bond issuance on January 1, 2021:

Debit: Cash $10.247 million

Credit: Bonds Payable $10.247 million

Journal entry to record interest on June 30, 2021, using the effective interest method:

Debit: Interest Expense $512,350 ($10.247 million * 12% * 6/12)

Debit: Discount on Bonds Payable $487,650 ($1 million - $512,350)

Credit: Cash $1 million

Journal entry to record interest on December 31, 2021, using the effective interest method:

Debit: Interest Expense $512,350 ($10.247 million * 12% * 6/12)

Debit: Discount on Bonds Payable $487,650 ($1 million - $512,350)

Credit: Cash $1 million

Step-by-step explanation:

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