On January 1, 2016, Bishop Company issued 10% bonds dated January 1, 2016 with a face amount of...

Question

On January 1, 2016, Bishop Company issued 10% bonds dated January 1, 2016 with a face amount of $1,000,000. The bonds mature in XXXXXXXXXXyears). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31.

Required:

1. Determine the price of the bonds at January 1, 2016.

2. Prepare the journal entry to record the bond issuance by Bishop on January 1,2016.

3. Prepare the journal entry to record interest on June 30, 2016, using the straight line method.

4. Prepare the journal entry to record interest on December 31, 2016, using the straight line method.

David · Accepted Answer

1
Solution  
Part 1 
 Price of the bond is given would be same as the present value of all the respective future 
earnings.  
Now,  
Given face amount = $1000000 
Interest on bonds would be computed as highlighted below:

On January 1, 2016, Bishop Company issued 10% bonds dated January 1, 2016 with a face amount of $1,000,000. The bonds mature in XXXXXXXXXXyears). For bonds of similar risk and maturity, the market...

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