Problem 2 (10 Points) On June 1, 2016 Raiders Universal issued 8% bonds dated Ju

Question

Problem 2 (10 Points) On June 1, 2016 Raiders Universal issued 8% bonds dated June 1, 2016, witha face anout of 5400,000. The bonds mature on June 1, 2020 (4 years). For honds of similar risk and maturity the market yield is 6% Interest is paid semiaanually on line l and December 1 Required: I. Determine the price of the bonds at June 1, 2016. 2. Prepare the journal entry to record their issuance by Raiders on June 1, 2016. 3, Prepare the journal entry to record interest on December 1, 2016, using the effective interest method

Explanation / Answer

1) Issue price of bonds = (400000*4%*7.01969)+(400000*0.78941) = 428080

2) Journal entry :

3) Journal entry :

Date accounts & explanation debit credit Cash 428080     Bonds payable 400000     Premium on bonds payable 28080 (To record issue bonds payable)

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