Bond Amortization
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On January 1, 2006, Bishop Company issued 11% bonds dated January 1, 2006, with a face amount of $10 million. The bonds mature in 2015 (10 years).
For bonds of similar risk and maturity, the market yield is 13%.
Interest is paid semiannually on June 30 and December 31.
(1.) Determine the price of the bonds at January 1, 2006.
(2.) Prepare the journal entry to record the bond issuance by Bishop on January 1, 2006.
(3.) Prepare the journal entry to record interest on June 30, 2006, using the effective interest method.
(4.) Prepare the journal entry to record interest on December 31, 2006, using the effective interest method.
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Solution Summary
The solution contains steps to determining the solutions and the journal entries. The solution also contains an excel file that has a loan amortization schedule.
Solution Preview
1. Calculating price is the same as calculating present value. In a financial calculator, input the following:
FV = 10,000,000
i = 6.5 % (13/2 for semiannual)
n = 20 (10 years)
PV ...
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