101
203) Determine the price of a $200,000 bond issue under each of the following independent
assumptions:
Maturity
Interest Paid
Stated Rate
Effective Rate
1.
10 years
annually
10%
12%
2.
10 years
semiannually
10%
12%
3.
20 years
semiannually
12%
12%
1.
Interest
$ 20,000 x 5.65022 =
Principal
200,000 x 0.32197 =
2.
Interest
$ 10,000 x 11.46992 =
Principal
200,000 x 0.31180 =
102
204) Determine the price of a $500,000 bond issue under each of the following independent
assumptions:
Maturity
Interest Paid
Stated Rate
Effective Rate
1.
10 years
annually
10%
12%
2.
10 years
semiannually
10%
12%
3.
20 years
semiannually
12%
10%
1.
Interest
$ 50,000 x 5.65022 =
Principal
500,000 x 0.32197 =
2.
Interest
$25,000 x 11.46992 =
Principal
500,000 x 0.31180 =
3.
Interest
$30,000 x 12.46221 =
Principal
500,000 x 0.37689 =
103
205) On January 1, 2018, Bishop Company issued 10% bonds dated January 1, 2018, with a face
amount of $20 million. The bonds mature in 2027 (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:
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.
104
206) On January 1, 2018, Mania Enterprises issued 12% bonds dated January 1, 2018, with a
face amount of $20 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.
Required:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond issuance by Mania 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.
105
207) On January 1, 2018, Shirley Corporation purchased 10% bonds dated January 1, 2018, with
a face amount of $10 million. The bonds mature in 2027 (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:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond purchase by Shirley 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.
106
208) On January 1, 2018, Rare Bird Ltd. purchased 12% bonds dated January 1, 2018, with a
face amount of $20 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.
Required:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond purchase by Rare Bird 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.
107
209) On January 1, 2018, Cool Universe issued 10% bonds dated January 1, 2018, with a face
amount of $20 million. The bonds mature in 2027 (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:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond issuance by Cool on January 1, 2018.
3. Prepare the journal entry to record interest on June 30, 2018, using the straight-line method.
4. Prepare the journal entry to record interest on December 31, 2018, using the straight-line
method.
108
210) On January 1, 2018, Boomer Universal issued 12% bonds dated January 1, 2018, with a
face amount of $200 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.
Required:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond issuance by Boomer on January 1, 2018.
3. Prepare the journal entry to record interest on June 30, 2018, using the straight-line method.
4. Prepare the journal entry to record interest on December 31, 2018, using the straight-line
method.
109
211) On January 1, 2018, Club Company purchased 10% bonds, dated January 1, 2018, with a
face amount of $20 million. The bonds mature in 2027 (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:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond purchase by Club on January 1, 2018.
3. Prepare the journal entry to record interest on June 30, 2018, using the straight-line method.
4. Prepare the journal entry to record interest on December 31, 2018, using the straight-line
method.
110
212) On January 1, 2018, for $18 million, Monument Company purchased 10% bonds, dated
January 1, 2018, with a face amount of $20 million. For bonds of similar risk and maturity, the
market yield is 12%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Prepare the journal entry to record interest on June 30, 2018, using the straight-line method.
2. Prepare the journal entry to record interest on December 31, 2018, using the straight-line
method.
111
213) On January 1, 2018, for $18 million, Cenotaph Company purchased 10% bonds, dated
January 1, 2018, with a face amount of $20 million. For bonds of similar risk and maturity, the
market yield is 12%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Prepare the journal entry to record interest on June 30, 2018, using the effective interest
method.
2. Prepare the journal entry to record interest on December 31, 2018, using the effective interest
method.
214) On January 1, 2018, for $18 million, Marker Company issued 10% bonds, dated January 1,
2018, with a face amount of $20 million. For bonds of similar risk and maturity, the market yield
is 12%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Prepare the journal entry to record interest on June 30, 2018, using the effective interest
method.
2. Prepare the journal entry to record interest on December 31, 2018, using the effective interest
method.
215) On January 1, 2018, Shark Company sold $800,000 of 10% ten-year bonds. Interest is
payable semiannually on June 30 and December 31. The bonds were sold for $708,000, priced to
yield 12%. Shark records interest at the effective rate.
Required:
Prepare the journal entry to record interest on June 30, 2018, using the effective interest method.
113
216) On July 1, 2018, Flay Foods issued $100 million of its 8%, bonds for $92 million. The
bonds were priced to yield 10%. The bonds are dated July 1, 2018. Interest is payable
semiannually on December 31 and June 30. Flay records interest at the effective rate. Flay
records interest at the effective rate.
Required:
1. Prepare the journal entry to record interest on December 31, 2018 (the first interest
payment).
2. Prepare the journal entry to record interest on June 30, 2019 (the second interest payment).
114
217) On January 1, 2018, Field Company purchased 12% bonds, dated January 1, 2018, with a
face amount of $20 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.
Required:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond purchase by Field on January 1, 2018.
3. Prepare the journal entry to record interest on June 30, 2018, using the straight-line method.
4. Prepare the journal entry to record interest on December 31, 2018, using the straight-line
method.
115
218) On February 1, 2018, Lagune & Sons issued 9% bonds dated February 1, 2018, with a face
amount of $200,000. The bonds sold for $182,841 and mature in 20 years. The effective interest
rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Lagune’s
fiscal year is the calendar year.
Required:
1. Prepare the journal entry to record the bond issuance on February 1, 2018.
2. Prepare the entry to record interest on July 31, 2018, using the effective interest method.
3. Prepare the necessary journal entry on December 31, 2018.
4. Prepare the necessary journal entry on January 31, 2019.
116
219) On February 1, 2018, Sanford & Son issued 10% bonds dated February 1, 2018, with a face
amount of $200,000. The bonds sold for $239,588 and mature in 20 years. The effective interest
rate for these bonds was 8%. Interest is paid semiannually on July 31 and January 31. Sanford &
Son’s fiscal year is the calendar year.
Required:
1. Prepare the journal entry to record the bond issuance on February 1, 2018.
2. Prepare the entry to record interest on July 31, 2018, using the straight-line method
3. Prepare the necessary journal entry on December 31, 2018.
4. Prepare the necessary journal entry on January 31, 2019.
117
220) On February 1, 2018, Fox Corporation issued 9% bonds dated February 1, 2018, with a face
amount of $200,000. The bonds sold for $182,841 and mature in 20 years. The effective interest
rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Fox’s
fiscal year is the calendar year. Fox uses the straight-line method of amortization.
Required:
1. Prepare the journal entry to record the bond issuance on February 1, 2018.
2. Prepare the entry to record interest on July 31, 2018.
3. Prepare the necessary journal entry on December 31, 2018.
4. Prepare the necessary journal entry on January 31, 2019.
118
221) On February 1, 2018, Wolf Inc. issued 10% bonds dated February 1, 2018, with a face
amount of $200,000. The bonds sold for $239,588 and mature in 20 years. The effective interest
rate for these bonds was 8%. Interest is paid semiannually on July 31 and January 31. Wolf’s
fiscal year is the calendar year. Wolf uses the effective interest method of amortization.
Required:
1. Prepare the journal entry to record the bond issuance on February 1, 2018.
2. Prepare the entry to record interest on July 31, 2018.
3. Prepare the necessary journal entry on December 31, 2018.
4. Prepare the necessary journal entry on January 31, 2019.
119
222) Miranda Company contracted with Stewart Corporation to construct custom-made
equipment. The equipment was completed and ready for use on January 1, 2018. Miranda paid
for the machine by issuing a $200,000, three-year note that bears interest at the rate of 4%,
payable annually on December 31 each year. Since the machine was custom-built, the cash price
was unknown. However, when compared to similar contracts, 10% was deemed to be a
reasonable rate of interest.
Required:
1. Prepare the journal entry by Miranda to record the purchase of equipment.
2. Prepare journal entries to record interest for each of the first two years.
120
223) On January 1, 2018, CPS Co. borrowed $340,000 cash from iLend and issued a five-year,
$340,000, 4% note. Interest was payable annually on December 31.
Required:
Prepare the journal entries for both firms to record interest at December 31, 2018.