- On January 1, 20x1, Fairway Inc. issued 12% bonds, dated January 1, 20x1, with a face amount of $20 million. The bonds mature in 10 years. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.
Fairway is a calendar-year corporation.
Required:
1) Determine the price of the bonds at January 1, 20x1. Briefly explain how you compute the price.
2) Prepare the journal entry to record the bond issuance by Fairway on January 1, 20x1.
3) Prepare the journal entry to record interest on June 30, 20x1, using the effective interest
method.
4) Prepare the journal entry to record interest on December 31, 2018, using the effective interest method.
5) Assume that all bonds are retired at 103.5 (you have to figure out what 103.5 means) on December 31, 20x1 right after the second payment. Prepare the journal entry for the retirement.
- On November 1, 20x1, Broncos Company issued 10% bonds with a face amount of $20 million. The bonds mature in 10 years. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on April 30 and October 31. Broncos is a calendar-year corporation.
Required:
1) Determine the price of the bonds at November 1, 20x1. Briefly explain how you compute the price.
2) Prepare the journal entry to record the bond issuance by Broncos on November 1, 20x1.
3) Prepare the journal entries (using the effective interest method):
a) December 31, 20x1 (*cash is not paid on December 31, 20x1)
b) April 30, 20x2Sample Solution